Chapter 13 bankruptcy can be overwhelming, especially when it comes to your car loan. Your vehicle is essential for your job, education, and overall well-being. This article simplifies the complexities of your auto loan during Chapter 13 bankruptcy, offering straightforward guidance to help you keep your car in this tough situation.
Understanding Your Car Loan in Chapter 13
In bankruptcy, there’s a valuable option called a “cramdown.” This allows you to reduce your loan amount to match your car’s current value. For instance, if you owe $20,000 on a car now worth $15,000, a cramdown can cut your loan to $15,000. The remaining $5,000 becomes unsecured debt, potentially forgiven after your bankruptcy. But, there’s a condition: you must have purchased the car at least 910 days (around two years) before filing for bankruptcy.
Your Options Simplified
1. The Cramdown Option
Reduce your loan to your car’s current value. If you meet the 910-day condition, you could significantly lower your debt.
2. Catching Up on Missed Payments
If you’ve fallen behind on payments, Chapter 13 allows you to catch up over 3 to 5 years. This is perfect if you had a temporary financial setback but can now resume regular payments.
3. Surrendering Your Vehicle
If keeping your car isn’t feasible, you can surrender it. The lender sells the car, and the remaining balance called a deficit, becomes part of your Chapter 13 case. You might not be fully responsible for this deficit, as it’s considered unsecured debt. You could end up paying only a small portion of it.
This article simplifies your car loan options during Chapter 13 bankruptcy, providing a clear understanding of what you can do to manage this challenging situation. Remember, there are solutions tailored to your specific needs.
This post was written by Trey Wright, one of the best bankruptcy lawyers in Tallahassee! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, specializing in bankruptcy law, estate planning, and business litigation.
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