This is the next post in a series of articles discussing the potential benefits of Chapter 13 bankruptcy for Olympia or Tacoma, Washington residents. My previous post described several possible ways debtors may improve their financial situation through the Chapter 13 process. In addition to the immediate end to creditor harassment and collection efforts, individuals often experience long-term benefits, such as retaining assets and reducing overall debt. This article will review the details of benefits related to one’s auto loan, including the “cramming down” of the loan, in a Chapter 13 bankruptcy. If you need assistance, contact our office today to speak with an attorney.
Getting behind on car payments can be extremely stressful. This is particularly true for subprime borrowers, who very often owe more to the bank than what their vehicle is worth. When a person has less than stellar credit, lenders charge higher amounts of interest and offer them extended repayment terms. This may seem attractive or necessary at the time of purchase, however, such terms often result in the borrower owing more money than the value of the car. Once an owner is “underwater,” it is nearly impossible to sell or trade the vehicle for an amount that will repay the debt. Through Chapter 13 bankruptcy, however, there are several benefits available that might make it possible for you to keep your vehicle.
One benefit is the ability to “cram down” a car loan. Cramming down an auto loan involves reducing the outstanding loan amount so that the debt equals the value of the vehicle. For example, if an individual owes $15,000 on their van, but the court determines that the van is worth $7,000, the loan will be reduced to $7,000. There are limitations to the availability of this benefit. A debtor must have purchased the vehicle at least two and a half years prior to the bankruptcy. This is to prevent debtors from abusing this benefit by filing Chapter 13 bankruptcy just after purchasing a vehicle.
For those who are behind on payments, another benefit is that overdue amounts can be repaid to the lender through the bankruptcy repayment plan.
Even if Debtors cram down an auto loan and repay arrearages through the plan, they must also remain current on payments for the new loan amount. It may be possible to have the court lower the interest rate on the loan and extend the loan term so that your monthly payment is reduced.
Finally, the court will include reasonable car payment amounts when calculating your monthly living expenses. If you own a luxury vehicle, it is unlikely that the court will include the entire car payment in this calculation, extend the cram down benefit to the vehicle, or apply other bankruptcy benefits available.
By using these benefits, many individuals successfully repay overdue amounts and keep their cars through Chapter 13 due to their reduced loan amounts and interest rates.
If you are considering bankruptcy, consulting with an attorney is a crucial step in understanding your rights. If you need assistance, contact us to speak with an Olympia lawyer. Our firm also services the Thurston County cities of Lacey, Tumwater, and Yelm, the Pierce County cities of Tacoma, Puyallup, and Lakewood, the Lewis County cities of Centralia, and Chehalis, the King County cities of Seattle, Auburn, Bellevue, Burien, and Federal Way, as well as other areas in Washington, including Grays Harbor, Mason, Cowlitz, and Pacific Counties.