Example of Reaffirmation Agreement vs. Cramdown of Vehicle Loan

 Posted on December 31, 2025 in Vehicle Loans

If you are filing for bankruptcy in 2026 and you have a vehicle loan, you need to understand your options for keeping your car. The choice between Chapter 7 and Chapter 13 bankruptcy can affect how much you pay for your vehicle and whether you can afford to keep it at all.

Two important concepts come into play here: reaffirmation agreements in Chapter 7 and cramdown in Chapter 13. Our Boerne, TX bankruptcy attorney can help you understand which approach makes the most sense for your situation.

What Is a Reaffirmation Agreement in Chapter 7 Bankruptcy?

A reaffirmation agreement is a contract you sign with your vehicle lender during a Chapter 7 bankruptcy case. When you reaffirm a debt, you agree to remain legally responsible for paying it even though your other debts are being discharged. In exchange, the lender agrees to let you keep the vehicle as long as you continue making payments.

Reaffirmation can be a good choice when you are current on your payments and the loan terms are reasonable. The monthly payments stay the same as your original contract. One benefit is that continuing to pay on the reaffirmed loan can help rebuild your credit after bankruptcy.

However, reaffirmation also carries risk. If you fall behind on payments after your bankruptcy case closes, the lender can repossess the vehicle and sue you for any remaining balance. You would owe this deficiency balance even though your other debts were wiped out.

What Is a Vehicle Loan Cramdown in Chapter 13 Bankruptcy?

Cramdown is a powerful tool available only in Chapter 13 bankruptcy. It allows you to rewrite your car loan based on the vehicle's current fair market value rather than the amount you owe. If your car is worth less than your loan balance, cramdown can reduce both your monthly payment and the total amount you pay for the vehicle.

Here is how it works. The portion of your loan equal to the car's value becomes a secured debt that you must pay in full through your Chapter 13 plan. The remaining balance becomes unsecured debt, which gets lumped in with your credit cards and medical bills.

You only pay unsecured debts to the extent you can afford to after covering your secured debts and living expenses. In many cases, little or nothing goes to unsecured creditors.

How Do You Qualify for Vehicle Loan Cramdown?

Cramdown is not available to everyone. Under 11 U.S.C. Section 1325(a)(9), special rules apply to consumer vehicle loans. You can only use cramdown if you purchased the vehicle more than 910 days before filing for bankruptcy. This equals roughly two and a half years. If you bought your car more recently, you must pay the full loan balance through your Chapter 13 plan.

Cramdown also only helps if your vehicle is worth less than what you owe. If you owe $10,000 on a car worth $12,000, there is nothing to cram down. The bigger the gap between your loan balance and your car's value, the more money cramdown can save you.

When Does a Chapter 13 Bankruptcy Cramdown Save You Money?

Consider this example: Christina bought her car three years ago when she had a higher paying job. She owes $15,500 on the vehicle with monthly payments of $600. After losing her job and becoming a single mom, she can no longer afford those payments. Her car is now worth only $8,000.

If Christina files Chapter 7 and reaffirms the car loan, she must continue paying $600 per month. She would pay roughly $16,500 over the remaining life of the loan. She cannot afford this.

If Christina files Chapter 13 and uses cramdown, she only needs to pay $8,000, plus interest for the secured portion of the debt and administrative costs. The remaining $7,500 becomes unsecured debt. Based on her income, she can afford $275 per month for 36 months, totaling $9,900.

Christina ends up paying less than half her original monthly payment. Her total payments are much lower than they would have been under reaffirmation. Most importantly, she gets to keep her car when she otherwise could not afford to.

Is Chapter 7 Reaffirmation or Chapter 13 Cramdown Right for You? 

Reaffirmation under Chapter 7 may work well if your loan payments are affordable and you are current on the debt. Chapter 13 cramdown may be better if your car is worth significantly less than you owe and you cannot afford your current payments.

Other factors matter too. If you are behind on a mortgage or owe back taxes, Chapter 13 offers tools to address those debts as well. If you have access to another vehicle through a family member, going through Chapter 13 just to keep your current car may not be worth it. Every situation is different.

Call a Kerrville, TX Bankruptcy Attorney Today

Choosing between Chapter 7 and Chapter 13 bankruptcy requires looking at your complete financial life. The decision affects not just your vehicle but your home, your debts, and your future.

The Law Offices of Chance M. McGhee can review your situation and help you understand which option offers the best path forward. Call 210-342-3400 to schedule a consultation with a Boerne, TX bankruptcy lawyer.