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Auto loan cram downs
Car loans involve issues that bankruptcy courts often have to deal with in both Chapter 7 and Chapter 13 proceedings. Chapter 7 doesn’t permit a cram down on an auto loan though. Chapter 13 allows it.
Here’s how a cram down works
If a debtor is filing for bankruptcy under Chapter 13, he or she might be able to reduce the principal balance on their car loan to the value of the car that’s securing the loan. For example, a debtor has a car worth $7,500, but the loan balance on it is $12,500. With our help in getting a Chapter 13 bankruptcy plan approved by the bankruptcy court, that debtor might be able to cram down the loan to the actual value of the car which is S7,500 while being allowed to keep the car too. That remaining $5,000 is shifted over and lumped in with the debtor’s unsecured debts like credit cards. Only a percentage of that unsecured debt need be paid, and the rest of it will be cleaned off of the slate after the debtor has finished performing under the plan. The debtor then owns the car outright without their lender’s lien. A car that’s paid for can’t be repossessed.
What else might you do with a cram down?
The bankruptcy court might also allow a debtor to extend payments out over a longer period of time than originally agreed upon while also considering the interest rate. That interest rate almost always ends up being lower than the rate that the debtor was originally paying. Because Chapter 13 bankruptcy plans ordinarily last from three to five years, the debtor is also likely to end up with a lower monthly payment on the car too.
Remember the 910 day rule
If you’re thinking about cramming down an auto loan, you’ll have to show that you bought that car more than 910 days before you filed for Chapter 13 protection. The purpose of this rule is to prevent people from buying a new car and then trying to cram the loan down in bankruptcy.
Contact a Los Angeles Bankruptcy Lawyer today
Don’t have your car repossessed when you can start on a new beginning with us. Most of our bankruptcy clients are responsible and hard working individuals who are looking for another chance. Most people deserve that. Feel free to contact us for a confidential consultation. We’re here to help you. It isn’t our job to judge you.
We assist people with bankruptcy in the following areas and counties of California:
- Los Angeles County
- San Fernando Valley
- Orange County
- San Bernardino County
- Riverside County
- Ventura County
- Santa Barbara County