Cram-down refers to a court forcing a creditor to accept new terms of a loan in bankruptcy proceedings. The tool is most often used in Chapter 13 proceedings to reduce the debt owed to a creditor to the value of the collateral. For example, if someone bought a car worth $25,000 with a loan, the loan could accrue interest and the overall loan size would increase. Cram-down would reduce the debt above $25,000 down to $25,000. Cram-down cannot be used for a mortgage on a person’s dwelling, but cram-down can be used in Chapter 11 bankruptcy in some situations.
[Last updated in June of 2021 by the Wex Definitions Team]