If you owe more on your vehicle than it's worth, you may be able to cram down the loan under Chapter 13 bankruptcy, a type of bankruptcy that allows you to repay debts. Cramming down a loan means you only pay what the vehicle is worth, and the rest of the debt gets discharged. The vehicle's value is treated as secured debt. Here is some more information on cramming down an auto loan with Chapter 13 bankruptcy.
Filing Chapter 13 Bankruptcy
Cramming down a vehicle loan is only available under Chapter 13 bankruptcy. All bankruptcy cases begin by filing a petition listing all unsecured and secured debts with the local court.
You must meet qualifications to be approved for Chapter 13 bankruptcy. You need sufficient income to repay debts after deducting allowed expenses, and you are required to attend credit counseling before filing. To claim a crammed-down vehicle loan, list the vehicle's worth under secured debt, and list the remainder of the debt under unsecured.
For example, if you owe $15,000 and the vehicle is worth $10,000, you list $5,000 as unsecured debt. This is called bifurcation. You also have three to five years to pay the debt, which gives you more time to pay.
The 910 Day Rule
Congress has imposed restrictions on cram downs to prevent debtors from claiming cram downs right after buying a vehicle To qualify for a cram down, your loan must be at least 910 days old. There may be exceptions to vehicles bough for business purposes.
If your vehicle loan is less than 910 days old, you still will be permitted to lower interest rate. The interest rate is commonly changed to the prime interest rate with some extra, but it is still lower than the interest rate on the loan.
Co-signers and Cram Down
Before filing bankruptcy, consider what may happen to your co-signer. If you have a co-signer with your loan, they could be held responsible for the remaining debt unless they are in bankruptcy. The automatic stay that applies after you file for bankruptcy only benefits you, and not co-signers.
You can protect co-signers with a co-debtor stay. The co-debtor stay only applies to an individual, and not a business. Be aware if you haven't paid the debt in full at the end of the bankruptcy case, the creditor can still try to collect this debt from the co-signer.
Chapter 13 bankruptcy cram down is one way to reduce what you owe on a vehicle loan. If you haven't filed bankruptcy, it is advised you seek the services of a bankruptcy lawyer like Todaro David M Co LPA.