How to Handle a Car Loan in Chapter 13 Bankruptcy
Do you have a car with a loan attached to it? If so, you may be able to keep your car and payoff your loan in bankruptcy.
Here's what you need to know:
- If you purchased your car less than 910 days before filing bankruptcy, you must pay off the loan balance in full. This rule is in place to prevent debtors from purchasing a vehicle and then discharging part of the loan balance in bankruptcy a few months later.
- If you purchased your vehicle more than 910 days before filing bankruptcy, you can either surrender the vehicle or repay part or all of the loan balance in Chapter 13 bankruptcy .
- Bankruptcy debtors may be able to repay only part of their vehicle loan balance if the car loan is upside down. If the vehicle is worth significantly less than the car loan, the bankruptcy court may "cramdown" the loan balance or even reduce the amount of interest you pay.
- If the debtor wants to keep their vehicle in Chapter 13 bankruptcy they will need to make payments and bring the car loan current. This means that if you missed six months of payments, you will need to catch up your back payments in bankruptcy. This task shouldn't be too daunting because the delinquent payments can be repaid over the course of the 3 to 5 year bankruptcy repayment period.
- If a debtor decides to keep their vehicle in Chapter 13 bankruptcy, they will most likely repay the entire loan over the course of their plan. The good news is that at the end of the Chapter 13 bankruptcy period, the car will be owned clear and free of debt.