What happens to your car loan if your Chapter 13 gets dismissed three or four years into your plan. I recently received a question about this on my Atlanta Bankruptcy blog. The debtor, named Melanie, is a single mom who lost her job following knee surgery. Now her case is dismissed and she is concerned about losing her car.
I think that Melanie has a legitimate concern. Remember that bankruptcy modifies the rights of creditors. There is a strong likelihood that the payment to the vehicle lender in the Chapter 13 is less than the contract payment rate. At dismissal, the automatic stay ends and the vehicle lender will recalculate the amount due based on the contract rate. Melanie may discover that she is hundreds or thousands of dollars delinquent even though she was current for many years in her Chapter 13.
Obviously, Melanie would have been better off avoiding dismissal, although this is not always possible if you have lost a job. I would advise her to get on the phone with the vehicle lender to see if she can work something out. If not, she should look into filing a second Chapter 13 case.
I think that many Chapter 13 debtors do not take enough time to think through the possible repercussions of a dismissed case. Chapter 13 is a serious business and if your case does not work, you will find, as Melanie is about to, that your position post dismissal is actually worse that it was prior to filing.
by Jonathan Ginsberg, Ginsberg Law Offices, Atlanta, GA
Jonathan Ginsberg, Esq.
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Last modified: November 8, 2012