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Keeping a Car in a Chapter 13 Bankruptcy

Posted by Peter Behrmann, Esq. On September 21st

Keeping a Car in a Chapter 13 Bankruptcy

In a Chapter 13 Bankruptcy, you have a few more options on keeping a car then you do in a Chapter 7 Bankruptcy.  You can use a Chapter 13 bankruptcy to keep a car that you are behind on payments on and/or get a car back that has already been repossessed.  Also, you can lower your car payment to a more manageable payment and even lower the interest rate to a more manageable rate. 

The first thing we look at when you’re looking to keep a car in a Chapter 13 bankruptcy is the basic facts surrounding your vehicle.  We need to know:

  • How much you owe on your car?
  • Who is your vehicle lender? (Ford Credit, Capital One, etc.)
  • What are your monthly payments?
  • What is your interest rate on the vehicle loan?
  • What is your car worth?
  • When did you purchase the vehicle?
  • Have you ever refinanced your vehicle lone?

With the information above we then determine if it makes sense for you to keep your car loan current and paid direct by you.  Or if it would be more beneficial for you to have the Chapter 13 Bankruptcy Trustee make the car payments for you. 

Usually, we decide to have you continue making your car payments directly if you are 100% current on your car loan and have an interest rate of less than 5% on your vehicle.  In these situations, the bankruptcy is most likely not going to save you any money on your car loan and having you continue to make the payments directly will actually cost you less in the long run and provide more money to your other creditors. 

On the flipside, if you have an interest rate more than 5%, you’re not 100% current on your car loan, or you happen to owe more on your car then your vehicle is worth we will most likely make the decision to have your Chapter 13 payment include your vehicle payment.  For example, if you happened to purchase a car through Credit Acceptance or Santander you most likely have a car loan with an interest rate of 19% to 24.99%.  If we have you continue paying your car payment you have to continue paying that high interest rate, where if I have the Chapter 13 Bankruptcy Trustee pay the car payment for you we can modify the interest rate to 5%!  Simply by lowing your interest rate can come with substantial savings to you that we can use to help get your home current, pay back tax bills, or simply pay other unsecured debt that you would not otherwise be able to pay.

Further, if you have purchased your vehicle more than 910 days ago (2.5 years) and you happen to owe more on your car then it is worth, we can go even further and cram down the amount that you owe on your car to the current value of your car.  So if you happen to owe $10,000 on a car loan with an interest rate of 19% and the car is only worth $6,000.  We can modify and cram down your car loan in a Chapter 13 plan to an interest rate of 5% and only pay back your car lender back the $6,000 that you vehicle is worth. 

Peter Behrmann is a Livonia Bankruptcy Attorney.  From my Livonia, Michigan location, I represent clients throughout Metro Detroit and beyond, including Garden City, Wayne, Westland, Redford, Dearborn, Taylor, Ann Arbor, Belleville, Northville, Novi, Farmington, Farmington Hills, Plymouth, Canton, and the Counties of Wayne, Oakland, Livingston, and Washtenaw. My practice is limited to helping consumers like you file Chapter 7 and Chapter 13 Bankruptcy, and Foreclosure Prevention.

4 Responses

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    Posted on September 21st, 2012 at 8:17 pm

  2. Shirley Says:

    Hi Peter, Thanks for the info on owning a car but I do not have a car. We are trying to sell it. My dad just bought my daughter, a 2001 PtCruiser so it’s paid for. Now, she just has to worry about car insurance. I will be so glad when this is all over with! I have probably driven you crazy with all my stupid questions but..it’s almost done! Brenda has that little job at Burger King, making minimum wage and then get paid every other week so they told her she wouldn’t receive a check for another 2 weeks so that’s going to delay our wait for her check stubs.

    Thank You for the info.

    Posted on September 22nd, 2012 at 2:13 pm

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