Your Auto Loan During Chapter 13 Bankruptcy
If you enter into Chapter 13 bankruptcy while you have a car loan, you may not have to lose your vehicle. However, it may not be a good idea to keep your car in all situations. We’ve got some tips on how to manage your auto loan after you’ve filed for Chapter 13 bankruptcy.
What Can Chapter 13 Do For Your Auto Loan?
Depending on your situation, filing for a Chapter 13 bankruptcy can do a lot for your car loan. Because a Chapter 13 bankruptcy is so long – three or five years – there are processes in place to help you keep your existing car loan, or even get a new one if something unexpected happens to your vehicle. current.
Chapter 13 bankruptcy can be particularly beneficial if you are behind on your car loan payments or if you owe more on your loan than the value of the vehicle. If you are in any of these situations, Chapter 13 can help you manage your situation and keep your car.
Keep your auto loan in Chapter 13
The first thing that happens when you file for bankruptcy is that an automatic stay goes into effect, which stops all collection attempts on you until the details of the bankruptcy can be worked out. When you file Chapter 13, you are saying that you can’t afford to pay for everything right now, but you are ready to work on it.
Chapter 13 is called a repayment bankruptcy and the court assigns you a trustee to handle your finances during the process. Your trustee establishes a budget and a repayment plan that you must respect. Because you have time to pay your creditors, you usually keep assets such as a vehicle at a reasonable price.
With the automatic stay in effect, your trustee can assess your auto loan situation and help you decide on a smooth path. If you plan to keep your car loan (or leasing) when you file for Chapter 13, you usually have two options, depending on the equity in your vehicle and whether you are up to date with your payments.
- Catch up on your auto loan with your repayment plan. If you were watching the barrel of a repo due to late or missed payments when you filed for bankruptcy, you have the option of adding those missed payments to your bankruptcy repayment plan – that means a chance to put your money down. ready to update! In order to permanently stop repossession, you need to stay up to date on your loan and repayment plan. If you are late with a payment again, even if your bankruptcy is successfully discharged, your lender has the right to repossess.
- Cramdown negative equity. If you owe more on your loan than the value of the car, you are in negative equity. If so, you may be able to reduce your auto loan to pay only the fair market value of the vehicle. The remaining amount of negative equity is added to your unsecured debt and can be wiped out if you successfully complete your Chapter 13 bankruptcy. Cramdowns are only available in this chapter on bankruptcy, and you must have owned your car for at least 910 days (two and a half years) before filing for bankruptcy.
When you can’t keep your car
If your car loan does not qualify for a reduction or if you do not wish to add the payments to your repayment plan, you have the option of voluntarily giving up your vehicle. If you don’t think you can keep up with both your car loan and your repayment plan, this may be a better option than allowing the lender to send a towing company.
If you return your car to the lender, you have to pay off the loan amount that is left over after you sell the vehicle, called a deficit. Paying this amount can ultimately be less expensive when you return the car yourself, as you avoid all of the costs associated with repossession. A traditional repossession involves paying storage and retrieval fees, but a voluntary repossession does not include them.
Getting a more affordable car loan during Chapter 13
Since a Chapter 13 bankruptcy lasts three or five years depending on your situation, a policy is in place to allow you to take out an auto loan in the event of open bankruptcy. This is an advantage when you can’t afford to keep the vehicle you have in your Chapter 13. If you forgo it and then find that you need another set of wheels, it’s usually possible to get a bankruptcy auto loan.
The process of getting a car loan during an open Chapter 13 begins with finding a lender who can work with borrowers facing bankruptcy or other challenges. Usually this is a subprime lender who works through a special financial concessionaire.
Once you have found a subprime lender, you should obtain a sample buyer order from the dealership listing all of the terms of the contract, including the highest possible interest rate you may be entitled to, and words “or similar” next to the make and model. of the vehicle you have chosen. This disclaimer allows you to continue the process without starting over if the specific car on which your buyer’s order was drawn has already been sold.
If your trustee approves the model contract and your need for a car, he files a petition to go into debt with the court. Once it’s approved, you get a debt court order and you can go back to the same dealership to complete your car loan paperwork.
Finding a car loan in the event of bankruptcy
If you’re looking for a dealership with the resources you need for a bankruptcy auto loan, we’ve got you covered! Auto Express Credit has been connecting bankrupt borrowers with local dealers ready to get them into a vehicle for over 20 years. Our process is fast, free and has no obligations. Simply complete our auto loan application form and we’ll put you in touch with a dealership that works with lenders who can handle auto loans in bankruptcy!