“Cramdowns” and Subchapter V

Cramdowns work hand in hand with Subchapter V bankruptcies. Subchapter V of Chapter 11 offers a streamlined process for small businesses going through bankruptcy. Simplifying the process means that filing under Subchapter V significantly reduces the time and money typical bankruptcy takes. A cramdown is a court-imposed reduction of debt with a secured loan.

Subchapter V can give businesses a needed fresh start. This is particularly true during the present times of economic turmoil. With Subchapter V the reorganization plan must be filed within 90 days after entering bankruptcy as compared to 300 days with a traditional Chapter 11 filing. As part of the Subchapter V, typically with a professional’s help, the debtor must demonstrate with a balance sheet how the business can continue successfully in the future. The business has to be able to pay its ongoing operating expenses.

Contractual obligations can be adjusted through Subchapter V which is a significant help to the business owner. A cramdown is one process that adjusts both a business’s assets as well as its debt. A cramdown reduces a business’s indebtedness.

A cramdown is used when one owes more for an asset, such as a piece of equipment or a parcel of real estate, than it is worth. Through the cramdown process the amount due on a secured loan can be reduced to the actual value of the asset. The adjustment reduces the amount of the business’s debt while retaining the asset to help run the business. This is a big help to the business owner.

This debt reduction of fixed costs helps with the business’s cash flow to support continued operation. A cramdown through Subchapter V allows one to pay a loan on the assets current worth which can be a significant savings to the business.

When a Subchapter V plan uses a cramdown motion the debtor is only eligible for the bankruptcy discharge when the final payment is made under the plan. If a cramdown is not used the debtor gets the discharge when the plan is confirmed.

Utilizing a cramdown in conjunction with Subchapter V is a powerful tool for small businesses needing to reorganize. It can provide the business with a fresh start and enable them to get back on their feet. If you are considering filing for bankruptcy contact Shoffner & Associates to better understand your options and to move forward.


With the right help, you are more likely to succeed. The attorneys at Shoffner & Associates will be happy to help you.

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