If you are thinking about filing for a chapter 13 bankruptcy and are worried what it will do to your auto loan, then you probably haven't heard of the cram down process. This is one of the most beneficial ways of keeping your car in chapter 13 bankruptcy. The whole process is explained below.
Cramming down your car loan means you could be potentially saving yourself thousands of dollars in the long run. You can either cram down the balance of your loan or the interest rate. Either case will lower your monthly payment, and save you money.
Cramming Down Your Auto Loan Balance
"Cramming down" your balance simply means you are lowering your auto loan balance to the fair market value of the car. For example, if your balance is $18,500 but the bluebook value is $13,500 you can "cram down" the loan balance to $13,500. The $5000 you are saving is used as an unsecured debt, just as any medical bill would be, and paid back cents on the dollar. This new balance would be paid off over the 36-60 month term, in turn lowering your payment significantly.
Cramming Down Your Interest Rate
Cramming down your interest rate on your loan essentially works the same as cramming down the balance. You are able to lower your vehicle's interest rate usually to one to two points higher than your state's current prime rate. Using our same example as above, if your loan balance is $18,500 and you’re currently paying 12% interest, if your state's current prime rate is 3.5% you can cram down your rate 4.5%. Paying this lower interest rate on your car over 60 months will lower your monthly payment to a more affordable price.
The 910 Day Rule
Unfortunately, not everyone filing for a chapter 13 is eligible. You are only eligible if you purchased your car 910 days (about 2.5 years) or more before applying for bankruptcy. If you have purchased your car less then 910 days before applying you are ineligible. This is to protect the lenders from debtors buying a car and then turning around and surrendering in bankruptcy.
Getting an Auto Loan after Bankruptcy
If you were ineligible to cram down your car loan or if the car is too expensive, your next best option might be to surrender the vehicle back to the creditor. If this is the case then you will be looking for chapter 13 auto loans. While getting vehicle financing in an open bankruptcy is a little more difficult, it is possible with Bankruptcy Auto Financing.
Our nationwide network of lenders specializes in auto financing after bankruptcy and understand the situation you are in and are willing to extend you a new line of credit. If you are looking for car loans after bankruptcy start today by filling out our online application to see if you are pre-approved.
Remember we are not lawyers and cannot give legal advice. The situations discussed are only our experiences over the years and may vary with each customer.