Chapter 13 bankruptcy, also called a Wage Earner’s Plan or an individual debt restructuring, is a powerful tool for people whose debts have become insurmountable. It is appealing to homeowners because Chapter 13 bankruptcy stops foreclosure sales and allows people more time to cure debts such as past due mortgage payments. Most people do not realize that Chapter 13 works similarly for certain vehicles when the vehicle loan is greater than the value of the car. Many people suffering from overwhelming debts are underwater on their cars, and losing their primary method transportation could be a potential disaster.
People who are upside down on their car loans can use a Chapter 13 procedure known as “vehicle cramdown” to reduce the amount they owe. If you owe more than your car is worth, it is possible to “cram” the total debt down to the fair market value of the vehicle. For example, if you owe $20,000 on a car that is only valued at $12,000 a Kansas City bankruptcy lawyer can reduce your debt all the way to the $12,000 the car is actually worth. In addition to reducing the total amount owed, the cramdown process can also reduce the interest rate to a manageable level, and give you more time in which to get the debt paid off.
Cramdown is only an option for those filing Chapter 13 bankruptcy. Those in Chapter 7 bankruptcy have different ways for dealing with vehicle debts. The basic requirements to cramdown a car’s value in Chapter 13 are:
- The vehicle must be for your own personal use
- The balance due on the loan must be greater than the fair market value of the vehicle
- You must have incurred the vehicle loan debt at least 910 days (roughly two and one-half years) before filing the bankruptcy petition with the court
If you meet all of these criteria, you might be able to significantly reduce your automobile debt. As part of a well-structured Chapter 13 bankruptcy Plan, a cramdown can help you get back on your feet. The bankruptcy court reviews the proposed plan and hears evidence as to the actual market value of the vehicle in question. The court can then order that the Plan go forward with the reduced amount as secured debt.
The process has many considerations, but a consultation with a Kansas City Bankruptcy attorney at The Sader Law Firm can help you decide if your situation is right for a cramdown. Contact one of our experienced attorneys for a free consultation to see if you are eligible today.