Cramdowns, Till Rates, and the 910-Day Rule: Key Insights for Creditors

When a debtor files for bankruptcy, they may have the ability to reduce the balance owed on secured loans—such as auto loans—based on the collateral’s fair market value.

Following the recent surge and subsequent correction in auto prices, many borrowers could benefit disproportionately from this process as vehicles depreciate at typical rates and bankruptcy filings rise. Whether you’re already navigating a multitude of consumer bankruptcies or foresee cramdowns affecting your recovery process, it’s essential to understand your risk and how to mitigate the impact.

During one of our latest What’s on Tap? webinars, our panel, including Philadelphia office Managing Attorney Cameron Deane and Attorney Scott Best, discussed the issue of cramdowns while enjoying a tasty brew—the Mayor Blond Ale—from Twisted Gingers Brewing Company. If you’re in the Philadelphia region, it’s worth a leisurely stop.

Here are a few of the key takeaways and questions answered during the session.

What are cramdowns and how do they impact bankruptcy cases?

A cramdown is a legal mechanism used in bankruptcy—typically under Chapter 11 or Chapter 13 filings—that allows a debtor to modify the terms of a secured debt based on the value of the property securing the debt. This may involve reducing the principal owed to the fair market value of the collateral, adjusting interest rates, or extending repayment terms.

From the creditor’s perspective, this may feel unfair because the cramdown does not pay the contractual balance in full. You may face a reduction of the principal balance and most likely a reduction on the interest balance left on the loan. Ultimately, the creditor’s contract and the delinquency of the loan are not factors the court considers when determining if a debtor is eligible for a cramdown option. Instead, the court may focus on the debtor’s financial position in terms of income and assets, and the date on which the debt was incurred prior to the bankruptcy filing.

Why is a Till rate important for creditors in bankruptcy cases?

The Till rate—a rule decided in Till v. SCS Credit Corp. in 2004—is a presumptive interest rate used in Chapter 13 cases. Under the rule, the debtor does not have to pay the contractual interest rate. Instead, courts may apply a “prime-plus” formula, which adds a risk premium (typically 1.5% to 3%) to the national prime rate.

For creditors, the Till rate is crucial because it directly affects how much interest they can recover on secured claims in Chapter 13 plans. Unlike the contract rate, which may be significantly higher, the Till rate can be lower, especially in cases involving depreciated collateral like vehicles.

While it may seem like another unfair rule for creditors, there can be favorable circumstances depending on national economic trends. For example, if you have issued an automotive loan with a favorable interest rate for the debtor but rates climb higher over time, you can request that the debtor pays the higher interest rate under Till.

Ultimately, the Till rate reflects what’s happening with the U.S. economy, including inflation and changes in the prime rate. Sometimes, it can favor creditors. Other times, it may benefit the debtor.

What is the 910-day rule?

Debtors can’t cram down loans for vehicles purchased within 910 days (about 2.5 years) before filing bankruptcy. However, loans secured by vehicles already owned (not purchase-money loans) are not subject to this rule and can be crammed down immediately.

What is loan bifurcation?

In a bankruptcy case, this is when a loan is split into:

• A secured portion based on the vehicle’s value.
• An unsecured portion for the remainder, which may be partially repaid depending on the debtor’s plan.

Creditors must file an amended proof of claim to reflect this bifurcation and ensure both portions are properly accounted for.

What steps can creditors take to protect their interests and avoid increased risk?

To protect their interests, creditors should carefully evaluate the following information:

• Loan age: Was the loan incurred more than 910 days before bankruptcy?
• Interest rate: Is the Till rate fair compared to the contract rate?
• Collateral valuation: Is the debtor using credible sources like Kelley Blue Book or a professional appraisal?
• Unsecured recovery: Will the debtor pay any portion of the unsecured balance?
• Co-signer status: Can the creditor pursue a non-filing co-signer for the remaining balance?

Final thoughts

Due to the COVID-19 pandemic and its associated inflation in automotive prices, many vehicles were purchased at inflated values. Now, as prices normalize, the fair market value used in bankruptcy court is often much lower than the original purchase price. This leads to larger unsecured portions in cramdowns, increasing creditor risk. However, with continuously shifting market conditions, proactive review and strategic response can help creditors mitigate losses and protect recovery rights.

To learn more about the impact of cramdowns in bankruptcy, you can watch the full What’s on Tap? episode today. If you’d like to connect with one of our panelists, you can reach out to Cameron and Scott for more information.

This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.