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An Example of Money Saved through Vehicle Loan Cramdown
Here’s an example of vehicle loan cramdown that shows how you can reduce your vehicle payments and be free and clear after paying less.
Our last 3 blog posts have been about Chapter 13 cramdown of a vehicle loan. Cramdown can reduce your loan’s monthly payments, its interest rate, and the total you pay for your vehicle. Often you end up saving a lot both monthly and on the total paid.
The last three blog posts introduced how cramdown works, how to qualify for it, and how you don’t have to catch up on late payments. But like anything, explaining a bunch of rules only goes so far. Showing how the rules actually get applied can be the best way to make sense of a complicated concept like cramdown. A good example is like a picture: it’s worth a thousand words.
So today, how does cramdown work in real life?
The Facts of Our Example
Let’s say you are a payment behind on your vehicle loan. You’re about to miss a second payment, and you’re feeling desperate. You have made making your vehicle payments a priority but you have other debts that are putting intense pressure on you. Your vehicle is absolutely essential in your life so you know you have to do something.
Cramdown Your Vehicle Loan if Behind on Payments
Vehicle loan cramdown doesn’t just likely reduce your vehicle payments and the total you pay. You’d also not have to catch up on late payments.
Our last two blog posts have been about lowering monthly vehicle loan payments through Chapter 13 cramdown. This also often reduces the total that you pay on the loan until your vehicle is free and clear. Cramdown often even reduces the interest rate you pay. So it usually saves you money both every month and long term.
If you’re behind on your payments there’s an even more immediate benefit. If you qualify for cramdown, you don’t have to catch up on any late payments. This frees up the money immediately for other urgent needs. This is a huge monetary benefit at a time when your cash is likely extremely tight.
On top of this financial benefit, you get the peace of mind that your vehicle won’t be repossessed. Vehicle lenders can be quick to repossess when you fall behind, especially if your payment history has been spotty. It’s great to prevent a repossession, and then not have to scramble to catch up on the missed payments.
Qualifying for a Vehicle Loan Cramdown
To qualify for a Chapter 13 vehicle loan cramdown, mostly your loan must be at least two and a half years old. There are exceptions to this.
Last week’s blog post was about lowering monthly vehicle loan payments through Chapter 13 cramdown. This also often reduces how much you end up paying on the loan, and often even reduces its interest rate. Cramdown usually saves you money both immediately and long term. And you end up owning your vehicle free and clear at the end of your Chapter 13 case.
Today we get into how to qualify for cramdown.
Qualifying for Cramdown—Timing
You can only do a cramdown if your vehicle loan is more than 910 days old when you file your Chapter 13 case. 910 day is about two and a half years. If you entered into the vehicle loan less than 910 days earlier, you can’t do a cramdown. You can’t reduce the monthly payments or the total amount paid on the loan.
The Bankruptcy Code says that you can’t do a cramdown if “the debt was incurred within the 910-day [period] preceding the date of the filing of the [Chapter 13] petition.” See the “hanging paragraph” following Section 506(a)(9) of the U.S. Bankruptcy Code.
The Role of a Bankruptcy Trustee
Coming to the decision that your best option is to file for bankruptcy is not easy. You may have taken weeks, if not months to realize that your best option is bankruptcy. The bankruptcy process can be confusing because of all of the legalities and people involved with the process. When you file for bankruptcy, the United States Trustee Program will assign you a bankruptcy trustee who will be responsible for overseeing your case. The trustee is one of the most important people in your case, so it is crucial that you understand the role of the trustee and the impact the trustee can have on your case.
What Is a Bankruptcy Trustee?
The role of a trustee was created to prevent the creditors and courts from having to be the ones responsible for collecting and distributing the property of those who file for bankruptcy. Trustees are independent contractors who are not employees of the bankruptcy court, but they must answer to the court and cannot take any kind of action until the court approves it. The trustee will evaluate and make recommendations pertaining to the demands of different debtors involved in the specific bankruptcy case they are assigned to.
Keep Your Vehicle through Cramdown
If you can’t afford to pay your vehicle payments even after writing off your other debts under Chapter 7, consider a Chapter 13 loan cramdown.
The last two blog posts have been about keeping your vehicle in a Chapter 7 case. Two weeks ago was about the benefits of reaffirming the vehicle’s loan. Last week was about possible ways of keeping the vehicle by making the loan payments but not reaffirming. These all assumed that you would keep on making the full monthly payments in order to keep the vehicle.
But what if you can’t afford the full monthly payments? Are there any other options if, even after getting rid of your other debt, you can’t pay the vehicle payments?
The answer: you may be able to reduce the vehicle payments through Chapter 13 cramdown. In fact, you may be able to significantly reduce the payments. And cramdown may give you some other huge financial benefits.
Reducing Monthly Payments through Cramdown
Keep Your Vehicle without Reaffirmation
Can you keep your vehicle without reaffirming its loan? Can you make the payments without reaffirming? What if you can’t afford the payments?
Last week we discussed keeping your vehicle in Chapter 7 by entering into a reaffirmation agreement with your vehicle lender. Through this agreement you exclude your vehicle loan from the discharge of debts. In return you get to keep your vehicle. You also get an early start on rebuilding your credit by making payments on and eventually paying off this loan.
We ended last week with two unanswered questions:
- Would you be able to keep your vehicle in a Chapter 7 case if you DIDN’T sign a reaffirmation agreement but just kept current on your payments and insurance?
- Are there any other options if you couldn’t afford the vehicle payments even after discharging your other debts?
We cover the first question today, the second one next time.
Risks to Avoid If You Can
Keep Your Vehicle by Reaffirming its Loan
If you want to keep your vehicle and still pay on its loan, file a Chapter 7 case to write off other debts and reaffirm the vehicle loan.
A Vehicle Loan is a Secured Debts
We started this series of blog posts on debts by introducing secured debts as follows:
Each of your debts is either secured by something you own or it is not. A secured debt is backed up by a lien, a legal interest of the creditor in some kind of property of yours. See Section 101(37) of the U.S. Bankruptcy Code.
Usually you know whether a debt is secured. For example, in the case of a vehicle loan the vehicle’s title states that your lender is the lienholder. That lien on the title makes the loan secured by the vehicle. That, together with the security agreement you signed, gives the lender certain rights over your vehicle.
What Not to Do Before Filing for a Texas Bankruptcy
For many people who have quite a bit of debt, bankruptcy is the best option. There are two types of bankruptcies that individuals can file for in the United States -- Chapter 7 and Chapter 13 bankruptcies. A Chapter 7 bankruptcy is one that discharges most of your debt and leaves you with a blank slate so you can rebuild your finances. A Chapter 13 bankruptcy is basically a reorganization of your debts -- you work with your debtors to come up with a repayment plan that works for you. In either of these scenarios, there are certain things that are big no-no’s. It is important that you avoid these common mistakes when filing for a Texas bankruptcy:
Lying or Withholding Information from Your Attorney
Though it may seem beneficial to lie or hide certain assets from your attorney, it is quite the opposite. It is against the law to attempt to hide assets or omit them from your list of assets that you submit to the bankruptcy court. Not only could your bankruptcy case be rejected, but you can also face criminal charges related to bankruptcy fraud.
Debts Sold or Assigned to Collection Agencies
What happens if you list a creditor in your bankruptcy case but, unknown to you, it sold the debt to a collection agency that you don’t list?
Our blog post two weeks ago was about needing to list all your debts in a bankruptcy case in order to write them off. This is part of a series of blog posts about debts that may not get discharged (written off) in bankruptcy. The law says that bankruptcy does not discharge debts that are "neither listed nor scheduled" in the bankruptcy documents. Section 523(a)(3) of the Bankruptcy Code.
Special Scenarios
This raises some practical questions, including the following:
- Is a debt covered if you don’t list it but the creditor still learns about your bankruptcy case?
- What happens if you list the creditor but it had previously sold the debt to a collection agency?
- What do you do if you don’t know all of your debts because you’ve moved or lost track of them for some other reason?
Creditor Not Listed But Knows about Your Case
Usually if you don’t list a debt, it doesn’t get discharged. An exception is if the creditor still learns about your case, on time.
Last week’s blog post was about the importance of listing all debts in a bankruptcy case to write them off. Debts "neither listed nor scheduled" in the bankruptcy documents are not discharged (legally written off). Section 523(a)(3) of the Bankruptcy Code.
Special Scenarios
This rule raises a number of practical questions. Here are some common situations:
- You don’t list a debt but the creditor finds out about your bankruptcy some other way.
- Your debt has been sold or assigned to a collection agency without your knowledge
- You don’t have good records of your debts and you may not know some of their names and addresses.
Today we address the first of these.
Creditor Knows About Your Bankruptcy Case
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