Chapter 13 and Your Automobile

It’s no secret that Americans love their cars. For many of us, they symbolize our freedom, and the thought of losing your car in bankruptcy can be nerve wracking. In reality, many people are able to keep their cars, but this depends on several factors, including which chapter you decide to file, how much you owe on your car, and how much the car is worth. As we prepare to file your case, we’ll assess the best way to handle your car.


Your Payment Plan

When we design your Chapter 13 repayment plan, we’ll need to show the court trustee that all of your disposable income after living expenses is going toward debt. As the court trustee evaluates your case, he or she will also be assessing your property to ensure that your secured payments are reasonable for your budget. If you have a high car payment, the car may be treated as a luxury item. This would mean that only a portion of your car payment would be allowed when figuring your disposable income. More disposable income would mean a higher monthly payment during your repayment plan. If you have a lot of nonexempt equity in your car, such as when you own the car outright, that equity could also increase your monthly payment.


Getting Back on Track

If you’re in danger of having your auto repossessed, filing bankruptcy can stop those proceedings when the automatic stay begins, even if you’re still behind on payments. It’s best to file before repossession, but you may still be able to get your car back after it’s been repossessed. We can work together on this.

The automatic stay will give you some time to get your finances in order. Part of your proposed repayment plan will include making your full car payment, and any arrearages can be spread out over the 3-5 years of your plan. Your car is safe as long as you keep up with all your payments.

If you owe more than your car is currently worth and purchased your car more than 2 ½ years ago, you may be able to “cram down” a portion of what you owe. We’ll first determine how much your car is worth, and then we may be able to reduce your loan to that amount only. This will be reflected in lower monthly payments. Any remaining balance is converted to unsecured debt, which may not even be paid in a Chapter 13.


Protect Your Assets

If you’ve been struggling financially, it can be discouraging when you realize it’s impossible to keep up with your payments and you might need to consider bankruptcy. Rather than feeling defeated, it’s important to remember the many benefits of bankruptcy. Through a Chapter 13, it’s possible to take care of your debts and responsibilities while also maintaining your property and assets you’ve worked so hard to gain.

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