Just about the top priority of most of my clients is protect their vehicle. The good news is that Chapter 13 repayment plans not only protect the family vehicle, but they also include additional powers to make the loan payment more affordable.
One of the greatest powers of Chapter 13 is the right to “cramdown” the amount of the auto loan to the value of the vehicle. For example, if you owe a $20,000 car loan but the vehicle is only worth $10,000, then you only have to pay $10,000 for the vehicle in Chapter 13 if the vehicle was purchased more than 910 days (about 2 & 1/2 years) prior to filing bankruptcy. However, if the loan was used to purchase the vehicle and was issued in the 910 days prior to filing bankruptcy, all of the loan must be repaid unless the vehicle is used in a business.
There are three (3) key questions here: 1) Was the loan obtained to purchase the vehicle? 2) Was the loan made within 910 days of filing bankruptcy? 3) Is the vehicle used in the operation of a business?
Regardless of when the loan was obtained, Chapter 13 law permits the debtor to reduce the loan interest rate as well. According to a Supreme Court decision, debtors must only pay 2% more than the prime interest rate. (See TILL V. SCS CREDIT CORP. 541 U.S. 465 (2004)) Currently the Prime Rate is 3.25%, so debtors are reducing their auto loan interest rates to 5.25% in the Chapter 13 payment plan.
It is not uncommon to discover that the monthly payment of a Chapter 13 is actually less than what a person pays on their monthly auto payment.