I am behind on my car payments, can Chapter 13 bankruptcy help?

If you are behind in car loan payments, Chapter 13 might help you keep your car. Here's how.

If you are behind on your car payments, Chapter 13 may help you keep your car. In Chapter 13, you can keep your car if you continue making your monthly car loan payment and catch up on the arrears through your repayment plan. You also might be able to reduce the total amount of your loan through Chapter 13, and pay that entire amount through the plan. Here's how it works.

(For more on what happens to your car in Chapter 13, including information on Chapter 13 and car repossessions, see Your Car in Chapter 13 Bankruptcy.)

Paying Car Loan Arrears Through Your Chapter 13 Plan

You can propose to catch up on your car loan arrears through your Chapter 13 plan. If you do this, you would also have to keep current on your regular monthly car loan payment.  

In some jurisdictions, the car lender might object to your plan based on the number of months you propose to pay back the arrears. If you and the creditor do not reach an agreement, the court will conduct a hearing and you will have to present evidence showing that your proposal to pay the arrears is feasible.

Paying a Reduced Loan Amount Through Your Plan: Cramdowns

If the amount of your car loan is more than the current market value of your car, you might be able to reduce your car loan so that it equals the value of your car. This is called a cramdown. There are some restrictions on cramdowns, however. For example, you must have purchased your car more than 910 days before you file for bankruptcy. (To learn more, see Can You Reduce Your Car Loan in Bankruptcy?)

If you cram down your car loan, you pay the entire crammed down amount, with interest, through your Chapter 13 repayment plan. The remaining amount (the difference between your car loan and the replacement value) becomes unsecured debt, and is paid along with your unsecured debt through your plan. Most debtors pay only a percentage of their unsecured debt in a Chapter 13 bankruptcy.

Keep Current on Your Chapter 13 Plan Payments

If you fall behind on your Chapter 13 plan payments or fail to maintain car insurance, the car loan lender may ask the court to remove the automatic stay so that it can repossess the vehicle.

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