Many people in Florida find themselves so overburdened by debt that they file for bankruptcy to get things in order. This makes them better equipped to manage their debts. Among those may be a car loan that they are struggling to afford. Instead of giving up what may be their only form of transportation, they may be able to keep their vehicle by reducing their car loan through a cramdown. You should take some time to learn how this option can make your car payments more affordable in bankruptcy.
Bankruptcy stay offers limited protection
During the beginning of most bankruptcy proceedings, an automatic stay is put into effect to prevent your lender from repossessing your vehicle if you have fallen behind on your payments. This is only a temporary source of relief. It should not be used as a solution to try to catch up on your payments to keep your car if you cannot afford it.
Benefits of an auto loan cramdown
You may be able to benefit from filing for a cramdown on your auto loan. This option is available only if you have owned your vehicle for at least 30 months or it has been a year since you purchased it and it has been in your possession. The type of bankruptcy you are approved for determines your repayment option.
In Chapter 13, you may have the option of paying in installments. Instead of paying the secured or financed amount for your vehicle to your lender, you only need to pay its actual replacement value. This option may not be feasible if you are approved for Chapter 7, because you will be required to pay a lump sum to pay off your vehicle.
Establishing new payments
You should keep certain stipulations in mind to remain eligible for a cramdown. For Chapter 13, your reduced payments must result in your vehicle being paid off within 36 to 60 months. Remember, the length of your repayment plan is determined by your income. Also, the difference between your new amount and the original amount that was owed to your lender becomes an unsecured debt that you still have to pay back.
For example, say the remaining balance on your car loan is $18,765, but your car is only worth $13,450. Chapter 13 bankruptcy lets you lower the balance you owe to $13,450 through a cramdown. Your payments would then be recalculated according to the actual value of your vehicle. Your monthly payment would be $221.16 on the 60-month repayment plan.
An auto cramdown is not ideal for everyone. To determine if it is something you should consider, discuss your situation with an attorney.