A Kansas City Bankruptcy Lawyer Provides Advice
The first question many people ask when they are considering consumer bankruptcy is the likelihood of being able to keep their vehicle. The state of Missouri allows a person to exempt up to $3,000 of vehicle equity when they file for a Chapter 7 or Chapter 13 case. However, this may not be enough to cover all vehicles. Thankfully, in a Chapter 13 case, there exists what is called a cram down car loan.
An interesting note about the term “cram down” is that it got its name because the bankruptcy court can metaphorically “cram” a new loan “down” the throats of objecting creditors!
Your Car Loan Options When You File Chapter 13 Bankruptcy
It is well-known that vehicles lose value quickly, particularly if they were purchased new. A vehicle that cost $40,000 on the lot can easily be worth only $20,000 within two years of its purchase. This makes it incredibly easy for families to find themselves upside-down on a car loan – that is, owing more to a creditor than the vehicle is worth.
Using the example above, the vehicle is worth $20,000 to the creditor, meaning that they would only be able to get $20,000 or less if they repossessed it and sold it. When you file for Chapter 13, you may have the option of filing for a cram down car loan, which lowers the amount that you owe on the car to its current market value. This effectively gets you “back on track” to repaying the car loan, because you are now paying only for its market worth, plus at a lower interest rate than your original loan. A cram down is a very useful tool that allows you to keep what you need to survive and work during the bankruptcy process.
However, two things must be noted. First, a cram down will only apply for a vehicle already owned when the loan was taken out; it only applies to purchase money loans. Also, you must have purchased your car at least 910 days (or 2 ½ years) before you filed for a Chapter 13 case. A cram down is not available for cares purchased prior to this time, but you will have other options to keep your car by incorporating the payments into your Chapter 13 payment plan.
Your Car Loan Options When You File Chapter 7 Bankruptcy
A cram down of a car loan is not possible when you file a Chapter 7 case. However, that does not necessarily mean you will lose your vehicle. Your Kansas City bankruptcy attorney can work with you to establish a “reaffirmation agreement” with the creditor of your vehicle – this will allow you to form a new contract and begin making payments on the vehicle, allowing it to remain in your possession.
Our Kansas City Bankruptcy Lawyers Can Help
Having an experienced Kansas City bankruptcy attorney will help you navigate the process of getting your financial life back on track. A Kansas City bankruptcy attorney can work with you to ensure that you keep what you cherish and need to survive. Contact our firm today to take the first step towards getting relief from debt.