How Chapter 13 Really Works When You Are Behind on a Vehicle Loan

Using Chapter 13 to Restructure a Car Loan

If you are facing financial challenges and have determined that bankruptcy is the best way to get a fresh start, you should know that Chapter 13 reorganization is often the best way to renegotiate the debt on your motor vehicle, allowing you to keep your car and pay it off over a three-to-five year period.

How Chapter 13 Works

When you file for Chapter 13 bankruptcy protection, an automatic stay immediately goes into effect, prohibiting your creditors from calling, writing or taking legal action to collect debts. In exchange for the relief from creditor harassment, you put together a reorganization plan, in which you work out agreements with most of your creditors to repay your debt over a three-to-five-year period. As long as you keep your promise, your creditors may not contact you outside of the bankruptcy process to seek to recover funds. When the bankruptcy period is over, any debts run through the bankruptcy should be gone. If you have larger obligations, such as a mortgage, you typically make payments during the bankruptcy process and keep making those payments after the bankruptcy is done.

If you are behind on car payments and file for Chapter 13, doing so will stop repossession while you and your attorney put together a plan to cure the arrears and possibly restructure the loan under certain circumstances.

Some caveats to consider when restructuring a car loan in a Chapter 13 proceeding:

  • Your motor vehicle expenses must be reasonable. In a Chapter 13 bankruptcy, the court seeks to determine the amount of your disposable income and then works to allocate that among your unsecured creditors. Any payments you have to make to secured creditors are used to reduce your disposable income. The bankruptcy court may determine that your vehicle is a luxury item or that your car payment is not proportional to your income or needs. In such a situation, you would not be allowed to deduct the full amount of your car payment from your disposable income.
  • If you have a lot of equity in your car (most people do not), it may result in higher payments into your reorganization plan.

Contact Neuner & Ventura, LLP

Let us help you take back control of your life! We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every new potential bankruptcy client. (We do, however, reserve the right to charge a fee to review any work done by another attorney). For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request

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