Lowering Car Loans in Chapter 13 Bankruptcy – San Diego Bankruptcy Attorney

Smiling Woman Holding Car KeysIndividuals typically file bankruptcy because of mounting debt.  In addition to discharging credit card and medical bills, there are other benefits for individuals filing bankruptcy.  One of these potential benefits is the ability to lower car loans through Chapter 13 bankruptcy.

As most people are aware, cars depreciate in value greatly and almost immediately after purchase.  The result is that car values are often lower than the loans associated with those vehicles.  So as long as an individual purchased a vehicle at least 910 days prior to filing bankruptcy, he or she can cramdown the loan in Chapter 13.  This means that the loan will be reduced to the value of the automobile, and the remaining portion of the loan is paid off, typically at a discount, with other unsecured nonpriority debts, such as credit card bills.  The reduced loan amount must then be paid off in full during the life of a Chapter 13 plan, and the car will be paid off in full after the Chapter 13 is complete.

For example: if an individual owes $15,000.00 on a car, but the car is only worth $8,000.00 when filing, the loan will be reduced to $8,000.00, and the remaining $7,000.00 will be treated as an unsecured nonpriority debt.  The $8,000.00 loan will need to be paid off in full during the term of the Chapter 13 plan, and the $7,000.00 unsecured portion will be paid prorata with other unsecured debts.  The interest rate on the $8,000.00 varies between Courts, but it is typically a little higher than the prime rate at the time of filing.  This reduction in interest rate can also be beneficial to an individual.

If you have any questions about lowering your car loan through Chapter 13 bankruptcy, please contact the VC Law Group at (858) 519-7333 or email at info@thevclawgroup.com.