Car Loans During Chapter 13 Bankruptcy: Filing for Chapter 13 bankruptcy is an option for people who are having financial difficulties. If it appears that it is too difficult or nearly impossible to become current with debts, seeking financial assistance by filing a bankruptcy case may be a viable option.
When some people file for bankruptcy, they already have a car loan. As long as the car loan payments are affordable, it is possible to keep the car during the bankruptcy. If the car loan payments are too expensive, surrendering the car to the car lender is also an option. It is also possible to acquire a new car loans during Chapter 13 bankruptcy under certain circumstances.
Car Loans During Chapter 13 Bankruptcy:
- Facts to know!
The bankruptcy court requires the person filing the case, also known as the debtor, provide information regarding his income for the six months prior to the date the case was filed. The person also has to provide information regarding:
- all of his debts,
- including credit card debts,
- mortgages, personal loans,
- and any other types of debts acquired prior to the bankruptcy filing.
Even if the person is current with his payments for certain accounts, the bankruptcy court still wants to know about them.
For each of the creditors, the person needs to list:
- the creditors’ names,
- the address for the creditors,
- the last four digits of the account numbers associated with the loans or debts,
- the monthly payment amount,
- and the total outstanding balance of the debt.
If the creditor has a security interest in the person’s property, such as a house or car, a description of the property needs to be provided as well.
Car Loans During Chapter 13 Bankruptcy:
- Do you have a car loan?
If the person has a car loan, the car lender is classified as a secured creditor in the bankruptcy. The car lender provided the person with a loan to purchase the car. In exchange for giving the person a loan, the car lender established a security interest in the car.
As a result, the car lender has a right to repossess the car if the person falls behind on the loan payments. When the bankruptcy case is filed, the car lender can no longer repossess the car.
An automatic stay is imposed on all creditors as soon as a bankruptcy case is filed with the court. The automatic stay prevents creditors from demanding payment from the debtor. Secured creditors cannot repossess the debtor’s property without approval from the court.
Due to the automatic stay provision in bankruptcy law, many people file cases when they are at risk of losing their car or home to repossession or foreclosure. Filing for bankruptcy gives them time to reorganize the payment of their debts and figure out the best way to proceed.
Even though the car lender needs court permission before it can repossess the vehicle, if the person wants to keep the car, he needs to keep making the loan payments during the bankruptcy. The person needs to create a payment plan in a Chapter 13 case.
Car Loans During Chapter 13 Bankruptcy: Do you know this?
Chapter 13 payment plans may last from three to five years. If the person wants to keep the vehicle, he needs to advise the bankruptcy court that he will continue making payments to the car lender. If the person is behind with his car payments, he also needs to start paying off the delinquent balance during the bankruptcy as well.
The person has three to five years to pay off the delinquency and must also keep making his regular monthly payments on time as they become due. The person must be able to afford the vehicle payments, payments for his other debts and basic living expenses if the wants the payment plan to succeed.
- Car Loans During Chapter 13 Bankruptcy: A nice option!
When the car payments are too expensive, surrendering the car in the bankruptcy is an option. The car lender will file a motion with the court stating that the debtor intends to surrender the car and will request permission to repossess the vehicle.
If the bankruptcy judge grants the motion, the car lender can repossess the car and sell it. When there is still an outstanding balance left over after the car lender receives the sale proceeds, the remaining balance will be included in the bankruptcy case.
If the person successfully completes the bankruptcy, the remaining balance owed to the car lender will be discharged. Receiving a discharge in bankruptcy means that the person is not responsible for paying the debt. The car lender will not be able to legally go after the person for any further payments related to that debt.
=>> Car Loans During Chapter 13 Bankruptcy: Consider this fact!
If a car loan was acquired more than 910 days before the bankruptcy was filed, the debtor has the option of paying less than what is owed for the car. Often, the values of cars depreciate substantially within a short period of time.
There are many people paying off loans that are greater than the current market value of the car. In bankruptcy, the person only has to pay off the fair market value of the car if the loan was acquired more than 910 days before the case starts.
This is beneficial for people with cars that are worth less than the total amount owed on the loan. For instance, if the car is worth $2,500 but the outstanding balance of the loan is $5,000, the debtor only has to pay $2,500 to the car lender during the bankruptcy.
The remaining $2,500 will be discharged when the case is completed. The bankruptcy provision which permits the debtor to pay off the car loan based on the current market value of the car is known as a cram down. In order to do a cram down in bankruptcy, a motion must be submitted to the court and approved by a judge.
=>> Car Loans During Chapter 13 Bankruptcy: A special case!
- Sometimes people need a new car if their current car is no longer operable.
There are times when people surrender their current car because it is too expensive and need another car that is more affordable. When this occurs, the person needs permission from the bankruptcy court to acquire a new car loan.
There are financial institutions that provide car loans to people currently in Chapter 13 bankruptcy. If the person qualifies for a loan, he has to make sure the payments are affordable. The person needs to submit a motion to the court requesting permission to acquire the new car loan. If the motion is granted, the person can obtain the new car loan and purchase a vehicle.
There are various options for a person who is either trying to pay off their current car loan or wanting to acquire a new car loan during Chapter 13 bankruptcy. If the person wants to keep the car, he will have three to five years to pay off a delinquent balance.
If he doesn’t want the car, he can surrender it and get rid of the remaining car loan debt. Under certain circumstances, he can reduce the total amount of money paid the the car lender. It is also possible to get a new car loan during the bankruptcy, if necessary. Hiring a knowledgeable bankruptcy attorney who knows how to utilize the bankruptcy law provisions in a way that is most beneficial for his clients is imperative.