A primary concern of most bankruptcy filers is what will happen to their vehicle. People depend on their vehicles to get to and from work, to transport kids and elderly family members, to run errands, and to travel out of town when necessary. Generally, unless there is something wrong with the vehicle or the debtor simply cannot afford to pay for it, most bankruptcy filers want to keep their cars. In Chapter 13 bankruptcy, debtors are sometimes able to pay less for their vehicle than what they currently owe.
When a Chapter 13 debtor is upside down on his or her vehicle, meaning the balance owed exceeds the current value of the car, the debtor may be able to cram down the debt. A vehicle cramdown is where a Chapter 13 debtor pays the fair market value of the vehicle instead of having to pay the total amount owed. If you are thinking about filing Chapter 13 bankruptcy, an experienced Maryland bankruptcy attorney can help you determine if you are eligible to cram down one or more of your vehicle loans.
A vehicle loan cramdown can only occur when certain circumstances are present:
- The vehicle must be for personal use
- The loan must be the loan you used to purchase the vehicle
- The balance owed must be more than the fair market value of the vehicle
- The debt must be at least 910 days old, that is, you obtained the loan more than 910 days before you filed bankruptcy
If the vehicle and the loan meet these requirements, the Chapter 13 debtor can pay the fair market value of the vehicle in full satisfaction of the debt. For example, if a debtor owes $20,000 on a vehicle worth $15,000, then by utilizing the vehicle cramdown provision of Chapter 13 bankruptcy, instead of paying $20,000 plus interest for the vehicle, the debtor will only pay $15,000 plus interest for it. The plan would treat the remaining $5,000 as unsecured debt, like a credit card. The vehicle cramdown provision is intended to help debtors who are upside down on older model vehicles obtain a fresh start. A qualified Washington DC bankruptcy attorney helps Chapter 13 debtors successfully cram down eligible vehicle loans.
To cram down an eligible vehicle loan, a Chapter 13 debtor must propose the cramdown in his or her Chapter 13 plan. The car creditor can object to the debtor’s proposed value, and when that happens, a skilled Maryland bankruptcy lawyer will negotiate with the creditor to reach an agreement about the vehicle’s fair market value, or will take the matter to hearing if the debtor and the creditor cannot reach an agreement. Without an attorney, the debtor may end up paying more than the vehicle is actually worth.
If you are considering Chapter 13 bankruptcy and want to learn more about cramming down a vehicle loan or any other aspect of the Chapter 13 process, contact a knowledgeable Washington DC bankruptcy lawyer today.