Cram Down: The Reduction of Principal and Interest On Loans Over The Objection of Creditors

Written by Adam Peck Category: Nursing Homes January 23rd, 2013 2 min read

Cram down or cramdown is the involuntary imposition by a court of a reorganization plan over the objection of some classes of creditors.

Home mortgage loans:
While typically used in a corporate context, the phrase has gained currency in a personal context the financial crisis of 2007-2009.

Under current United States law, bankruptcy courts are not allowed to perform cram downs (i.e., reduce the principal amount or change the interest rate or other terms) on mortgages of bankruptcy filers’ primary residences. As a potential solution to the sub-prime mortgage crisis, legislators and consumer advocates have advanced a proposal to allow cram downs on these loans, and legislation to that effect was introduced for potential inclusion in the Emergency Economic Stabilization Act of 2008.

However, the financial industry strongly voiced opposition to such a measure, claiming that it would create additional uncertainty as to the value of mortgage loans (and by extension, the collateralized debt obligations into which they are bundled). While the provision ultimately was not included in the bill passed into law, the concept still has advocates and new legislation allowing for first-mortgage cram downs may appear in the future.
Informal use:
The term (sometimes used in the phrase cram-down deal) has also gained currency to denote informally any transaction where existing investors (debt or equity) are forced by circumstance to accept an unappealing transaction, such as an expensive financing, a debt transaction that subordinates them, a diluted equity raising, or an acquisition at an unappealingly low price.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.