01 Apr Chapter 13 Bankruptcy Can Help You Pay Less For Your Car!
In a Chapter 7, you have limited options:
- If you are current on your loan payments, you can sign a reaffirmation agreement and keep the vehicle. The problem with a reaffirming the car loan is that you just filed to get out of debt: By reaffirming the debt, you are once again personally responsible for the car payment just as if you had never filed for the car payment.
- If you are not current on the loan, you can surrender the car. In doing so, the creditor can only get what the vehicle sells for at auction: The creditor cannot come after you for the balance that is owed. While this gets you out from under the debt, many people must have a vehicle.
- A third option is to find another lender willing to lend you the money to pay off the original lender. This is known as a Redemption of the vehicle.
However, you have more options to keep a car in a Chapter 13.
While you still have the option in a 13 to surrender the car, you can also pay the lender “through the plan”, meaning that the creditor gets paid through monthly payments to the Trustee. This can have the advantage of reducing the monthly payments and also the interest paid.
The process of paying a reduced amount for a secured debt like a car loan is generally referred to as a “cram down.” Unfortunately, the right to cram down a car loan were limited by the changes to the 2005 changes to the Bankruptcy Code brought on by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), but they still exist, and under the proper circumstances, can help you keep a vehicle you might otherwise have to give up.
In order to do a cram down you will have had to have purchased the vehicle more than 910 days before the filing of the bankruptcy. If more than 910 days have passed since the purchase, then the vehicle can be paid for at its actual value rather than the balance owed on the loan. The reduced amount can then be paid out in equal payments of 36 – 60 months in a Chapter 13 bankruptcy.
Even if the loan is less than 910 days old payments on high interest rate loans can be reduced.
The creditor still maintains the right to file a claim for the balance of the debt owed, but the claim for that balance is unsecured and will be discharged at the completion of the 13.
One downside to a cram down is that you are extending the monthly payments on a vehicle that may be coming to the end of its useful life.
Like many things in bankruptcy, the decision to cram down a car payment or to surrender a vehicle should be made after careful consideration.
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