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Car Loans in Chapter 13

If you're considering filing for Chapter 13 bankruptcy and have an active car loan, you're no doubt concerned about what might happen to your car and about your ability to continue making payments on it while your case is active.

To ask your questions directly to a bankruptcy lawyer, simply fill out this form; for more information in how car loans are treated in Chapter 13 bankruptcy, read on.

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Car Loans in Chapter 13 Bankruptcy

If you need your car to get to and from work or for another essential part of your daily life, filing for Chapter 13 bankruptcy may allow you to prevent your creditors from repossessing your car. Here's how car loans may work in Chapter 13 bankruptcy:

  • If you've had your loan for fewer than 910 days: If you initiated your car's loan within 910 days (about 30 months) of filing your bankruptcy petition, chances are good that you'll have to repay the loan's full amount as part of your Chapter 13 repayment plan. The court may, however, lower your interest rate, thus reducing total payments.
  • If you've had your loan for more than 910 days: If your car loan is older than 910 days, there's a chance you won't have to repay the loan's entire value. Instead, the court may allow you to "cram down" the loan. Essentially, a "cram-down" requires a borrower to pay only the car's current value, regardless of how much she owes on the loan.
  • If you own your car outright, there's a good chance that it will be protected in a Chapter 13 bankruptcy filing, particularly if you need it to get to and from your job.

Car Leases in Chapter 13 Bankruptcy

If you've been leasing a car and decide to file for Chapter 13 protection, your situation will be somewhat different. Here’s why:

  • Chapter 13 repayment plans generally don't allow filers to include car lease payments.
  • You must decide how to proceed. You can choose either to "assume" the lease and thus continue making payments as agreed upon in the terms of your lease, or to "reject" the loan and return the car to the lender.
  • Your lender will handle the car. If you choose to reject your lease, the lender will typically sell the car, use whatever money comes from the sale to cover the balance you owed on your lease and file a claim for the remainder in bankruptcy court.
  • The claim filed by the car lender becomes a low-priority, unsecured debt in bankruptcy court, which means that you could stand a good chance of repaying less than its total amount as part of your repayment plan.

Learn More about Your Car in Bankruptcy

Bankruptcy laws vary by state. If you'd like to learn more about what might happen to your car in bankruptcy (including how car loans and leases are handled in Chapter 7 bankruptcy cases), take this opportunity to speak with a bankruptcy lawyer practicing near you. Simply fill out the case review form below to get started.

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Laws may have changed since our last update.  This is for informational purposes and is not legal advice.  Speak to a local bankruptcy attorney for legal advice about your particular situation.