Are you planning to file for bankruptcy under Chapter 13, but also have a car that is worth less than what you owe on it? If so, you could cram down your car loan. This means that you'll only need to pay off what your car is worth, with the remainder of the loan debt being discharged. The process is commonly referred to as cramming down a loan, and here is what you need to know about it.
Know How to List The Car When Filing
You can only cram down a car loan if you file bankruptcy under Chapter 13. You'll need to file the necessary petition, and list all of your secured and unsecured debts. Your car loan will be treated as both a secured and unsecured debt under this type of bankruptcy filing. The worth of the car is considered a secured debt, with what's remaining of the loan being considered unsecured. For instance, if there is $10,000 remaining on the loan and the car is only worth $7,000, you would have $7,000 worth of secured debt and $3,000 worth of unsecured debt.
Qualify for Bankruptcy
Since Chapter 13 requires you to repay debts, you must qualify for it to take advantage of the car loan cram down. Qualification is based on if you are capable of repaying the debts after you take deductions for expenses that are allowed. If you do not meet this qualification, you will need to file for Chapter 7 bankruptcy instead, which won't allow you to cram down the car loan.
Verify the Loan's Length
There are restrictions on how old a car loan must be to qualify as a loan cram down. This is to prevent people from buying a car, filing for bankruptcy, and getting a reduced price for their new car. It's required that you had the loan for 910 days or more. For loans that are not that old, you could qualify to retain the loan with a low interest rate instead.
Deal with Co-Signers
If someone co-signed the loan with you, be aware that they may be responsible for paying back the debt you plan on discharging with the cram down. Your lawyer can help protect them with a process similar to an automatic stay, called a co-debtor stay. It will protect creditors from going after them for the remainder of the debt that will be discharged, but only if you continue to make payments toward the secured amount.
To learn more about your options, contact firms such as Stuart R Whitehair Attorney.