When you're filing for Chapter 13 bankruptcy, it can be hard to determine the exact outcome. Chapter 13 is a long process lasting three or five years – and a lot can happen during that time. Luckily, you have some options when it comes to managing your auto loan in Chapter 13.
Keeping Your Car In Chapter 13
One of the biggest advantages to a Chapter 13 bankruptcy is that you can usually keep your auto loan. But do you really want to?
If your car loan is something that pushed you toward bankruptcy in the first place, it might be worth looking into a more affordable vehicle option. However, in a Chapter 13 bankruptcy, you have more options to keep your car than you do in a Chapter 7 bankruptcy.
Chapter 13 Bankruptcy is known as the reorganization bankruptcy, and it gives you a chance to repay your creditors through the help of a payment plan. Adding your car loan to the repayment plan gives you a chance to catch up on any payments you may have missed leading up to your bankruptcy. You may even be able to pay less than what you owe on your loan during Chapter 13.
Paying Less for Your Vehicle During Bankruptcy
If you have a vehicle with negative equity going into Chapter 13, you may be able to cram down your loan. A loan cramdown makes sense when your car's worth less than you owe on your loan.
If this is the case when you enter bankruptcy, you may be able to renegotiate your auto loan contract and have the lender agree to accept the market value of the vehicle rather than your loan balance.
Giving Up Your Vehicle In Chapter 13
Sometimes it isn't wise to keep your vehicle during Chapter 13 bankruptcy. If you have a lot of equity in your car you may not be able to cover it with an exemption. You're less likely to be able to keep a vehicle with a high value, especially if giving it up would free up money to repay other debts.
Other reasons you may not be able to keep your vehicle loan during bankruptcy include having high loan payments or having more than one vehicle. This is especially true if you have multiple cars with high amounts of equity.
Even though you must come up with a plan with your bankruptcy trustee to repay the majority of your debts in Chapter 13 bankruptcy, you may have a little time to figure out what to do. Once you file bankruptcy, an automatic stay starts, which halts all collection efforts until your bankruptcy filing details are worked out.
If you were in danger of losing your vehicle to repossession, the automatic stay stops this, and you and your trustee can work out the best course of action for you and your auto loan. If you decide not to keep your car loan, you can voluntarily surrender it by giving it back to the lender. Know, though, that you’re still responsible for any deficiency balance left after the vehicle sells at auction.
Getting Another Car In Chapter 13
Lastly, if you find yourself needing another vehicle during your bankruptcy, there are rules in place to allow for this during Chapter 13. A lot can happen over a few years, and car breakdown is possible – lenders and courts know this, but you need your trustee's permission first.
To get a vehicle in an open Chapter 13 bankruptcy, you have to work with a dealership that has bankruptcy lenders. Once you know where to go, fill out a sample buyer's order with the dealer that lists all the details of the loan, including the make and model of the car you're considering and the highest possible interest rate you may qualify for.
Take this sheet to your trustee and they will go over it and determine if the loan fits into your repayment plan. If they agree, they file a Motion to Incur Debt with the bankruptcy court and you await approval. Once you're granted an Order to Incur Debt and can return to the dealership to complete the process and take delivery of your vehicle.
TCC Tip: When you're filling out a sample buyer's order at the dealership be sure that the dealer includes the words "or similar" next to your vehicle selection. Without this, you have to restart the process from scratch if the car you were looking at has sold before your motion is approved.
Finding a Bankruptcy Auto Lender
Now that you know there are several ways to manage your auto loan during a Chapter 13 bankruptcy and you can move forward with your filing in confidence! If you're at the point where you need another vehicle, or you've just come out of bankruptcy and need another car, The Car Connection wants to help.
Not all lenders can work with borrowers who have a bankruptcy on their credit reports, and not all dealers work with these lenders. So, instead of searching all over for the right combination, let us do the work! We have a nationwide network of special finance dealerships that have the lending resources you need. Simply fill out our fast, free car loan request form and we'll get right to work for you!