Many people find themselves “underwater” on their car loans, meaning that they owe more to the lienholder on the vehicle than their vehicle is worth. That being said, many people wish to retain those vehicles in lieu of surrendering the vehicles in their bankruptcy and discharging the entire debt.
If the vehicle was recently purchased prior to bankruptcy, a debtor will generally have to pay off the contract balance of the loan through the life of the Chapter 13 bankruptcy. If however the vehicle was purchased more than 910 days prior to the bankruptcy filing date, your bankruptcy attorney may be able to utilize an often overlooked bankruptcy strategy known as the “506 Cramdown” (based on 11 U.S.C. § 506 of the bankruptcy code).
The 506 Cramdown allows you to supply evidence to the court which supports the current fair market value of your vehicle. If the Court accepts your valuation of the vehicle, the lienholder’s secured claim (which must be paid through your Chapter 13 Plan if you desire to keep the vehicle) will be reduced to the value amount, instead of the full amount owed on the contract. The remaining amounts owed on the contract to the lienholder over and above the secured claim will be shifted to your other unsecured debts and will most likely be discharged in full at the successful completion of your Chapter 13 bankruptcy case.
For example, let’s say you purchased your vehicle on January 1, 2012, and you filed your bankruptcy on January 1, 2015. At the time of your bankruptcy filing, the remaining amount you owed to the lienholder on the vehicle was $20,000.00. You run a valuation of the vehicle and find that the current value of the vehicle is $13,000.00. Since you purchased the vehicle more than 910 days prior to your bankruptcy you can utilize the “506 Cramdown” to pay your lienholder the reduced amount of $13,000.00 in full satisfaction of the secured debt, and own the vehicle free and clear.
An experienced bankruptcy attorney will know when you walk into their office to look for more than simply what you owe on your vehicle when figuring out your Chapter 13 reorganization plan. Make sure you know the approximate date of when you purchased the vehicle and provide that to your attorney. He or she will then utilize the valuation methods that are accepted in their jurisdiction to save you and your family your hard earned money.
The Sader Law Firm – Kansas City Bankruptcy Attorneys