Bankruptcy Law Firm

SMARTblog Website

  • About Us
  • Blog
  • Chapter 7
  • Chapter 13
  • Testimonials
  • Contact Us
You are here: Home / Vehicle Loans / How Bankruptcy Deals with Your Vehicle Loan if You Want to Keep Your Vehicle

How Bankruptcy Deals with Your Vehicle Loan if You Want to Keep Your Vehicle

February 16, 2015 by Mikel Erdman

Chapter 7 and Chapter 13 both help you pay your vehicle loan and keep your vehicle, each in their own way.

 

Paying Your Vehicle Loan under Chapter 7

The main benefit of filing a Chapter 7 “straight bankruptcy” case as far as your vehicle loan is concerned is that you will be much better able to afford to pay it. That’s because you will likely be able to write off (“discharge”) most or even all your other debts, leaving you with more money each month to pay your vehicle loan.

Under Chapter 7 you have the option to keep your car or truck and continue making payments on it until it is paid off, or to surrender it and owe nothing more on the loan because any remaining balance is discharged along with the rest of your debts.

If you want to keep the car or truck, you almost always must “reaffirm” the debt, meaning you must sign a “reaffirmation agreement.” That makes you liable on the debt in spite of your bankruptcy filing. A “reaffirmation” excludes the vehicle loan from the discharge of your debts. This means that if at some point in the future you couldn’t make the payments and the vehicle was repossessed, you would likely still owe part of the debt—a repossessed vehicle is seldom sold off for at high enough of a price to cover the full debt amount.

But after all, that is the risk you take with any vehicle loan, that if you can’t make the payments the vehicle would be repossessed and you’d probably still owe part of the debt. Under Chapter 7, you have the opportunity to decide one more time whether that risk is worth the benefits of having the vehicle. After discharging all or most of your other debts you may well be in a much better position to pay the monthly payments—as well as the vehicle’s gas, maintenance and insurance—than when you first bought the vehicle.

Paying Your Vehicle Loan in a Chapter 13 “Adjustment of Debts”

Under Chapter 13 you have more protection from your vehicle creditor than under Chapter 7,and also may be able to reduce the monthly payments and the total amount needed for paying off your vehicle loan.

The greater protection comes from the reality that Chapter 13 cases last so much longer than Chapter 7 ones—usually 3 to 5 years instead of only about 3 months. Thus the “automatic stay”—the law that prevents repossessions and other collection activity—can be in effect that much longer. It’s not that your vehicle couldn’t possibly get repossessed in a Chapter 13 case, but the creditor would first have to ask permission from the bankruptcy court, a procedure which would at the least give you and your attorney a chance to work something out with your creditor.

And if your vehicle loan is more than two and a half years old and you owe on it more than the vehicle is worth, you can do a “cramdown”—re-write the contract so that in effect the new loan principal is the amount of the vehicle’s value. Plus you can often reduce the interest rate, sometimes stretch out the payments, all to reduce the monthly payment, often radically so. As for the portion of the loan balance that is beyond the value of the vehicle, it is lumped in with the rest of your “general unsecured” debts, which are paid only to the extent that you can afford to pay them during the life of the Chapter 13 case, which is often not much. The end result is that “cramdown” can often save you a lot each month on the loan payments, AND thousands of dollars over the life of the loan.

Conclusion

Chapter 7 is appropriate as far as your vehicle loan is concerned if discharging your other debts will free up enough money for you so that you can afford to pay the vehicle loan. Chapter 13 is instead appropriate if you need more protection, and need to lower your monthly payments (assuming your loan qualifies for “cramdown”).

 

Filed Under: Vehicle Loans Tagged With: cramdown, secured debt, vehicle cramdown, vehicle leases, vehicle repossession, vehicle surrender

Avatar

About Mikel Erdman

Mikel Erdman is the founder of MySMARTblog and RealtyBlogContent. He is a published author and speaking authority on topics including marketing automation and how technology can positively affect company and individual sales efforts.
If you like the idea of world-class content marketing in a completely automated system, Click Here for his valuable, limited time offer.

Contact Information

Bankruptcy Law Firm
1000 E. Law St.
Cash, California 55555
Business: 123-456-7891
Day Hours
Monday 9:00 AM to 5:00 PM
Tuesday 9:00 AM to 5:00 PM
Wednesday 9:00 AM to 5:00 PM
Thursday 9:00 AM to 5:00 PM
Friday 9:00 AM to 5:00 PM
Saturday Closed
Sunday Closed

Our Clients Words

Michael's service is second to none. I'm fortunate to have selected his firm to represent us in this serious matter.
— Clyde Drexler

I've had so much fun as a judge on American Idol this year. I just hope the censors let me back on so I can sing, sing, sing!
— Steven Tyler

I love baseball, apple pie and Chevrolet. By the way, I'm hitting it straight outta this park!
— Babe Ruth

It's been a wild trip so far. I can't wait to see what's right up around the corner. Thanks for the surprises!
— Terry Bradshaw

Recent Posts

  • More Bankruptcy Advantages with the Foreclosure Moratorium
  • Bankruptcy Advantages with the Foreclosure Moratorium
  • Short Extension to Foreclosure Moratorium
  • Student Loan Moratorium Extended through September 2021
  • Eviction Moratorium Extended through March 2021

Archives

February 2021
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
« Jan    

Copyright © 2021 · Powered by MySMARTblog