Just as Chapter 13 can stop a foreclosure, the automatic stay that occurs when a person files will also prevent that person’s car from being repossessed. The chapter 13 plan will give the debtor the chance to consolidate the entire balance of the loan into a 3 or 5 year plan. If their interest rate is fairly high, they may also be able to lower the interest rate.
Another interesting thing about Chapter 13 when it comes to car loans is that if the car was purchased new and is more than 910 days old, or if it was purchased used and they have had it for more than a year, they will be able “cram down” the value of the car. What that means is that you can reduce the loan to the current fair market value so that it will be easier to pay off. For example, if someone owed $15,000 on a car, and it was more than 910 days old and was only worth $10,000, the other $5,000 would go away.
Put simply, under chapter 13, it is possible to modify the automobile loan contract under their reorganization plan. If someone owes $15,000 and their interest rate was 15 percent, but the car is worth only $7,000, they may be able to set up a plan to pay the $7,000 at the current rate of interest set by the bankruptcy court. Generally speaking, I have seen people be able to get about a 5.25% interest rate approved through the plan.
Chapter 13 can work out great for those struggling to make their monthly car payment because they may be able to modify the interest rate and the account balance andbe able to spread it out over a full 60 months if necessary.
For more information on Chapter 13 and Car Repossession, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling (858) 278-2800 today.