If you are behind on your car payment, Chapter 13 bankruptcy can offer a way to avoid repossession, to catch up past due car payments, and pay off the car over time. Through a Chapter 13 bankruptcy you may also be able to reduce the interest rate on your car loan and reduce the total amount owed on your car.
At this point you may be wondering what a Chapter 13 bankruptcy is. A Chapter 13 bankruptcy is a type of bankruptcy that allows for a combination of debt restructuring, debt reduction, debt elimination and debt repayment through the Court system.
How Chapter 13 bankruptcy can help with car debt
Chapter 13 bankruptcies are commonly used to catch up and restructure certain debts such as automobile loans. Not only does chapter 13 offer an opportunity to catch up an auto loan and avoid repossession, but Chapter 13 also offers a number of opportunities to restructure and reduce the amount of the payment and the amount owed on auto loans.
Here are some specific ways Chapter 13 bankruptcy can help you keep your car and deal with the debt:
Avoid repossession with Chapter 13
If you are behind on your car payment and worried about possible repossession, Chapter 13 bankruptcy can provide immediate protection from the Court. Upon filing a chapter 13, you are protected by what is called the automatic stay. This is an automatic Order entered by the Court that halts creditors’ efforts to repossess a vehicle.
A Chapter 13 bankruptcy can be used to catch up past due car payments
Through the Chapter 13 bankruptcy the owner of the car has the opportunity to catch up the past due auto payments over time. Catching up past due payments is not all of the relief a Chapter 13 offers auto borrowers, though. Chapter 13 also offers an opportunity to restructure auto loans, often reducing the principal balance owed, the amount of interest to be paid, and the amount of the monthly payments.
Restructuring car loans through a Chapter 13 bankruptcy
You don’t have to be behind on your car payments to benefit from a Chapter 13 bankruptcy. Even when you are current on your car payments, a Chapter 13 can be used to restructure and reduce the amount of your monthly payments and reduce the interest and principal owed on your car loan.
Reducing the interest rate with a Chapter 13 bankruptcy
Often we will be able to restructure and reduce the amount of total payments simply by applying a lower interest rate allowed for by the Bankruptcy Court. For many individuals I have work with, this alone results in car payments that are dramatically lower than the ones paid before the bankruptcy.
Using Chapter 13 to reduce the principal amount owed on your car
You might also be able to reduce the principal amount of debt owed on your car in a Chapter 13. In bankruptcy, this is referred to as a “cram down.” If you owe more on your car than it is worth, you may be able to benefit from a cram down. Under the right circumstances, we can reduce the amount you owe on your car down to the fair market value of the vehicle.
I have personally seen auto loans get cut in half using a Chapter 13 cram down. Cram down won’t apply to all car loans, however. There are certain requirements must be met before an auto loan can be crammed down.
Other benefits of Chapter 13 bankruptcy
Not only does Chapter 13 bankruptcy help individuals avoid repossession, catch up and restructure their car loans, but Chapter 13 also offers the opportunity to restructure and eliminate many other types of debts. You can find out more about Chapter 13 bankruptcy here.
If you live in central Mississippi would like to discuss how a Chapter 13 may benefit you, please call my office at 601-853-9966 to set up a free and confidential initial consultation.