When a debtor files for Chapter 13 bankruptcy his/her vehicle loan is often paid through the payment plan with the trustee.
If the debtor has had the vehicle for at least 910 days before the bankruptcy is filed, then a “cram down” on the value might be possible if the value of the vehicle is less than what is left to pay on the loan. For example, if the vehicle is worth $10,000 but the principal left on the loan is $15,000 then the cram down on value would mean that only $10,000 (plus interest) would be paid to the lender.
A “cram down” on the interest rate is also possible if the contract rate on the loan is more than the interest rate the trustee would pay to the lender. For example, if the contract rate is 22% and the trustee’s rate is 5% then the lender will only receive the 5% interest rate.
The cram down on value and cram down on the interest rate essentially changes the terms of the loan through the bankruptcy and can save the debtor hundreds if not thousands of dollars.
In general, the monthly amount paid to the lender will end up being less through bankruptcy than what the contract monthly payment was.
Unfortunately, not all Chapter 13 cases make it to the end. Some cases get dismissed because the debtor is unable to keep up with the monthly payments with the trustee and eventually the case gets dismissed.
If the case is dismissed, the vehicle loan will, in most cases, be considered behind because the lender was receiving less per month during the bankruptcy than what the monthly contract pay was.
For example, if the contract monthly payment was $500 but the lender was only paid $400 per month during the bankruptcy then the lender was shorted $100 per month each month the bankruptcy was in place. If the bankruptcy had been going on for twelve months then there would be $1,200 that lenders had not received that they otherwise would have outside of bankruptcy.
Once a case is dismissed, the vehicle loan reverts to the contract terms, and immediately the loan will be considered behind and the debtor would then need to work out something with the lender to get caught up.
Contact one of our bankruptcy attorneys for more information about vehicle loans in bankruptcy for a free consultation or visit WM Law’s website at: www.kansascitybankruptcy.com.
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