How to Keep Your Car and Lower Your Payments with a Chapter 13 “Cram Down” - By: James Underson

An increasingly popular aspect included in the Chapter 13 Bankruptcy code is delivering a sizeable benefit to automobile owners who wish to keep their vehicles while lowering payments and reducing the price of the car. Using a strategy known as a “Cram Down”, California bankruptcy lawyersare savings their clients thousands of dollars by modifying automobile loan terms including the extension of payoff dates, lower interest rates, and drastic reductions in the outstanding balances on those loans.

When a Chapter 13 bankruptcy petition is filed, auto loans are automatically placed on the secured debt side of the ledger. Creditors notified of the Chapter 13 filing then file a claim on the remaining amount owed by the filer. Under specific circumstances debtors can counter these claims, using a provision in Chapter 13 Bankruptcy code which allows for the reduction of the creditor’s claim on the remaining balance owed to a balance based on what the car is currently worth. The cram-down is an option as long as the Chapter 13 petition is filed more than 910 days after the purchase of the vehicle. If that requirement is met and the loan balance is greater than the current value of the car, the bankruptcy court can deem that the creditor must accept payment equal to the car’s current value to fully satisfy the outstanding loan.

With both requirements met, a typical a cram down would be calculated in the following manner: At the time of the Chapter 13 filing, the lender makes a claim stating that there is $14,000 remaining on the balance owed on the auto loan. The filer’s bankruptcy attorney shows that the car is currently valued at $5,500. Following Chapter 13 protocol, the creditor’s claim of $14,000 would be crammed down to a balance owed in the amount owed of $5,500. In this example, the borrower would save $8,500 in principle and would then be paying interest on a $5,500 balance instead of $14,000. Upon completion of payments based on the court approved payment plan, the auto loan would be considered paid in full and title would be transferred to the owner.
A borrower would also benefit from the implementation of the court approved payment plan. Typically, court approved payment plans resulting from cram-downs extend the repayment time on the remaining balance which lowers payments even further. In many cases, the reduction of the outstanding balance and the extension of the payment schedule can reduce monthly payments by 70 to 80%.

There are additional considerations in getting an auto loan cram-down, which should be handled by an experienced bankruptcy attorney. Errors during the process can be costly or disqualify the cram down altogether. An experienced California bankruptcy lawyers
can avoid typical errors and ensure the best result possible.

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