The Auto Loan Cramdown in Chapter 13 Bankruptcy

If you are considering filing bankruptcy and you owe more money on your automobile loan than what the vehicle is worth then you might want to look into Chapter 13 bankruptcy protection.  One aspect that is available only in a Chapter 13 case is the auto loan cramdown.

As soon as you drive your vehicle off the car lot the value decreases significantly.  Even after paying on your auto loan for two or three years you may have built up little or no equity.  It does not make sense to owe double of what your vehicle is worth.  The auto loan cramdown in Chapter 13 bankruptcy allows you to cramdown the amount of the secured portion of the loan to what your vehicle is actually worth.

For example: your car’s fair market value is $5,000 but you owe $11,000 on your loan even after paying on time every month for the past three years.  Utilizing the auto loan cramdown the loan in Chapter 13 the secured portion of your auto loan will become $5,000 and the remaining $6,000 will be treated as unsecured debt; just like credit cards or medical bills.  This unsecured portion will usually only be paid a certain percentage of what is owed during the life of your case and whatever is unpaid will be discharged.

What’s The Catch?

The one requirement you must meet in order to cramdown your auto loan is that the auto loan was taken out more than 910 days prior to the date you file your case.  This is roughly 2.5 years prior to your bankruptcy case.  The Bankruptcy Court limits this cramdown advantage to older auto loans, so if you just purchased your automobile you probably will not be able to use reduce the amount you pay through bankruptcy.