Let's discuss what happens in chapter 13 bankruptcies and what will happen to your car. If you are facing having to file a bankruptcy then knowing what will happen to your car can be a real concern. In this article we will discuss what you need to know so you don't find yourself out on the street without a car.
It is suggested that you work with your legal team before making any final decisions.
To begin with here's what happens in a chapter 13 bankruptcy. When you file for chapter 13 you, your attorney and the estate trustee will work together to restructure your debts so that you can pay off your loans easier.
The attorney and trustee will work with your creditors, doing what they can to lower interest rates and they may deduct late charges and fees if they are able. Then, a new monthly amount will be determined for you to get out from under your debt. This can be considered a repayment bankruptcy. Depending on your specific situation you will pay this new monthly amount for 3 to 5 years until you have wiped the debt clean.
With a chapter 13, if you have a car loan payment, you can restructure the loan and any amount you are behind into the repayment plan. Here you could keep your car. Be aware, that your car payments could most likely be more than you were paying before; this is to get you caught up on your balance that you have fallen behind on. In addition, you are responsible for the entire amount of the loan. If your car is worth $4,000 and you still owe $6000, you are forced to pay the entire balance.
If your car was repossessed shortly before beginning the bankruptcy case, you have a slight period of time where you may be able to get the car back by including the balance due in the repayment plan.
The final option you may apply for is called a cram down. This is where the courts have the opportunity to lower your loan amount equal to the blue book value of the car. The difference between your original loan and the value of your car becomes like any other unsecured debt and you may not have to pay it, it will be discharged through the bankruptcy.
In addition, the courts have the ability to lower your interest rates to approximately 2 percent above the prime rate. Obviously, this would reduce your monthly payment making it more manageable for you.
In order to qualify for the cram down you will need to have purchased the car two and a half years prior to the bankruptcy. And the final stipulation is that the car must be paid off by the end of your repayment plan. So for example if your repayment through chapter 13 is three years, the car must be completely paid off by the end of that three-year period, sometimes this will require a lump sum to be paid in full at the end of the bankruptcy term.
Always consult with your attorney what might be the best options for you and your specific situation.
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