Cramdown

AAA

DEFINITION of 'Cramdown'

A bankruptcy concept that is often employed to obtain a Chapter 11 bankruptcy reorganization plan while there are still objections from one or more creditors. Cramdown allows the bankruptcy courts to modify loan terms subject to certain conditions in an attempt to have all parties come out better than they would have without such modifications. The conditions are mainly that the new terms are fair and equitable to all parties involved.



INVESTOPEDIA EXPLAINS 'Cramdown'

The term "cramdown" comes from the idea that the loan changes are "crammed down" creditors' throats - they can either renegotiate the loan through a Chapter 11 reorganization, or lose everything through a Chapter 7.

Secured creditors will often do better in a Chapter 11 reorganization than unsecured creditors, and are are usually the ones with objections. The unsecured creditor's best defense against an unwanted reorganization plan is usually to stay away from arguing whether the plan is fair and equitable and to instead challenge whether the debtor can meet the plan's obligations.

During the financial crisis of 2008, cramdown was used to help troubled mortgage borrowers by allowing the bankruptcy courts to alter mortgage terms, subject to certain conditions, in an attempt to keep borrowers from foreclosure when one or more tranches of the mortgage did not agree to loan modification.

RELATED TERMS
  1. Debt Restructuring Fraud

    An illegal technique where an individual or corporation hides ...
  2. Cram-Down Deal

    1. A situation in which a creditor is forced to accept undesirable ...
  3. Chapter 11

    Named after the U.S. bankruptcy code 11, Chapter 11 is a form ...
  4. Secured Debt

    Debt backed or secured by collateral to reduce the risk associated ...
  5. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  6. Prepackaged Bankruptcy

    A plan for financial reorganization that a company prepares in ...
RELATED FAQS
  1. What are the differences between chapter 7 and chapter 11 bankruptcy?

    Chapter 7 bankruptcy is sometimes also called liquidation bankruptcy. Firms experiencing this form of bankruptcy are past ... Read Full Answer >>
  2. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  3. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  4. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
  5. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
  6. What measures could the U.S. Government take to prevent another crisis similar to ...

    Some of the measures that the U.S. government can take to prevent another crisis similar to the savings and loan (S&L) ... Read Full Answer >>
Related Articles
  1. Retirement

    Bankruptcy Protection For Your Accounts

    Will the plan assets you've worked hard for be safe if you experience a personal financial crisis?
  2. Options & Futures

    Bankruptcy Filing Changes That Could Affect You

    When the economy is down, more people file for bankruptcy. Make sure you know about the changes that have been made to this process.
  3. Insurance

    Life After Bankruptcy

    Find out what you have to look forward to after filing for Chapter 7 or 13.
  4. Options & Futures

    Should You File For Bankruptcy?

    Find out how to determine whether this option will help or hurt your financial situation.
  5. Options & Futures

    Changing The Face Of Bankruptcy

    A 2005 law attempts to unmask fraudulent debtors and still save those who are struggling. Will it affect you?
  6. Economics

    What Does Going Concern Mean?

    Going concern is a concept used in business and accounting to describe the fiscal health of a company.
  7. Fundamental Analysis

    Companies That Went Bankrupt From Innovation Lag

    Companies that don't keep up with market-changing innovations run the risk of going bankrupt. We look at some examples.
  8. Economics

    Game Theory And The Greece Bank Crisis

    How can game theory help us understand how the Greece bank crisis will play out? As things come to a head, Greece and the Europeans are trying to hold out.
  9. Stock Analysis

    The 3 Best Buy-and-Hold Stocks For the Next 10 Years

    Find out what makes electric cars, burritos and muscle shirts great buy-and-hold additions to your long-term portfolio.
  10. Markets

    Will Spain Exit the Euro?

    With a "no" vote in last Sunday’s referendum on whether the Greek people would accept imposed austerity measures, chances of a Greek exit from the euro have substantially increased. Will Spain ...

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!