I am in the middle of pulling transmission for a 97 z28 clutch installation.

Does the torque arm need to be completely removed from both the transmission and the rear end to lower the transmission?

Forward bolt on the rear torque arm mount won't pull completely out of the rear end due to interferrence with the body.
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Have you tried putting weight on the wheels/diff to get the axle back to rotate?

 

I'm not sure if a 97 is that different from a 2000, but I didn't remove the torque arm from the rear, just the trans. After unbolting from the trans, I pulled/pryed it loose - check out the www.installuniversity.com clutch install section - they didn't remove the torque arm from the rear either.

 

yeah just seperate the pieces of the torque arm mount and then pry the bar out. Then you can lower the trans with no problem