Clients often want to know what we can do to help them with their car payments in Chapter 13. Often we can make it a whole lot easier for clients to pay their car loans. Here are some of the ways we can help.
1. Pay off the car in Chapter 13. Your car loan must be paid in full during a Chapter 13 Plan, as long as the last car payment falls within the term of the Plan. So if you have 49 months remaining on your loan and your Plan is 60 months long, your Plan must pay off the full balance. If you have 61 months remaining on your car loan, you can opt to continue making your normal car payments directly throughout your case and avoid the Trustee's commission.
2. With older cars, "cram down" the loan to the value of the car. If you bought your car on credit more than 910 days (2.5 years) ago, we look to see if the value of your car is less than the amount of the loan. If your car is underwater, we can reduce the amount of the loan to match the value of the car. This is called cramdown, and it's one of the most powerful remedies you have in bankruptcy..
3. Reduce the interest rate to the Till rate. Regardless of whether you bought your car more than 2.5 years ago, we can generally reduce your interest rate on your car loan to the Till rate (named after a Supreme Court case). The Till rate is generally the prime rate, plus some risk factor. So, the prime rate as of the date of this post is 3.25 percent. Assuming we add a risk factor of one percent, the Till rate is 4.25 percent. Very few borrowers already have interest rates lower than 4.25 percent (and many have them up to the mid-to-high teens), so this is a benefit for almost everyone.
4. Surrender the car. The last option, surrendering the car and wiping out the debt, is attractive if your car is a real beater. If the car isn't worth the remaining loan balance, you can always give it up in Chapter 13 bankruptcy just like you can in a Chapter 7 case.
If you're struggling to make payments on your car loan, give us a call. There may be lots we can do to make your car payment more affordable by filing a Chapter 13 case.