Bankruptcy and Auto Loans – Saving Your Car in Bankruptcy
King and King Bankruptcy Attorneys 8/30/2012
If your vehicle is worth less than you owe, or you are paying excessive interest, Chapter 13 bankruptcy can reduce your balance, cut your interest rate, and slash your payment. A “cram down” of an auto loan is a major benefit available only in Chapter 13 bankruptcy.
Bad car loans can be financially devastating. As a bankruptcy firm in Atlanta, we have seen clients with auto loans nearly two times the value of their vehicles and at higher than 20% interest. However, it is not only debtors with egregiously bad loans who benefit from Chapter 13 cram downs. Unexpected depreciation of a vehicle’s value and a modestly high interest rate will quickly place almost anyone underwater on a car loan.
Bankruptcy and the Balance on an Auto Loan
Cramming down your car loan balance in Chapter 13 reduces the balance to the vehicle’s fair market value. This new lower amount is paid through your Chapter 13 plan. Although a creditor may object to the value that you propose, courts will generally accept the average Bluebook value. Any remaining balance becomes an unsecured debt like your credit cards, medical bills, etc. Because most Chapter 13 debtors pay only a small portion of their unsecured debt, cramming down the balance can save you thousands of dollars.
Time is a Factor
To be eligible to cram down the balance on an auto loan, you must have purchased the vehicle at least 910 days (a little over 30 months) from the date that you filed your Chapter 13 bankruptcy. Even if your car was purchased within 910 days of filing, most clients are able to lower their interest rate to a much lower rate than the one the financing company offered them. Many of our clients are able to save thousands of dollars of interest this way.
Speaking with an experienced bankruptcy firm such as King and King, serving Atlanta for over 30 years, is the first step to your financial freedom. Call us today for a free consultation 404-524-6400