Car Loans in Chapter 13 Bankruptcy

Are you facing a possible repossession because you cannot pay the payments on your car loan?  Are you worried about how you will get to work and take care of your family without a car?  Filing a Chapter 13 bankruptcy stops repossession and collection efforts immediately.  The automatic stay provisions of the Bankruptcy Code prevent lenders from repossessing property once you file your bankruptcy petition.  If you qualify for a Chapter 13 case, you can include your car loan in the bankruptcy plan and spread the payments out over 60 months.  In most cases, this allows a debtor to keep his or her car while also solving other debt problems.

How Is My Car Loan Paid If I File Bankruptcy?

A car loan is a secured debt meaning the lender holds your car title as collateral for the debt. Each month, you pay your bankruptcy plan payment to the Chapter 13 trustee.  The trustee disburses the funds to your creditors according to the terms of your confirmed Chapter 13 plan, including the lender for your car loan.  Once the lender has received the full amount owed on the car loan, the lender must release the lien on your car.  You do still have to pay interest to the lender; however, the interest rate for secured debt in a Chapter 13 case is fixed by law and may be less than the interest rate you were paying prior to filing your bankruptcy case.

One benefit of including a car loan in a Chapter 13 plan is the ability to value the lien on the car.  If the market value of your car is less than the payoff on your car loan, you may be able to reduce the amount of the secured debt owed on the car.  In other words, you will only be required to pay an amount equal to the value of your car to satisfy the lien on the car.  A knowledgeable bankruptcy lawyer can determine if this is possible after reviewing your specific situation.

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