The cram down is the term that is used to describe a court mandated reorganization plan. These types of plans can be used in a corporate sense as well as with personal finance. Here are a few things to consider about the cram down and how they work.

Cram Down

When an individual or business files for reorganization bankruptcy, the creditors are going to try to have some input as to how the reorganization plan should be constructed. In some cases, the court will agree with what the creditors recommend. When the court goes against what the creditors say, this is known as a cram down.

Mortgages

If an individual goes bankrupt and they have a mortgage, the court system can choose to implement a cram down. Even though the mortgage lender is going to oppose this solution, in some cases, it is in the best interest of the individual. This was made evident through the Emergency Economic Stabilization Act of 2008. The government decided to implement the possible use of cram downs when it came to residential mortgages. This was done at the recommendation of consumer advocacy groups. Most mortgage lenders opposed this legislation, but it now has the ability to help consumers.

blog comments powered by Disqus