Auto Loan Cram Downs
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Auto Loan Cram Downs
While most consumers prefer to file for Chapter 7 bankruptcy, Chapter 13 does offer a unique advantage: the auto loan cram-down. In some cases, the outstanding balance on an auto loan can be “crammed down” to the vehicle’s fair market value. If you are upside-down on a car loan or owe more than the car is worth, an auto loan cram down can help you keep your vehicle and get rid of the outstanding balance after paying fair market value for the car.
What is a Car Loan Cram Down?
Cars depreciate very quickly, especially new cars, and many car loan borrowers owe more on their loan than the vehicle is worth, especially when fees are added to the loan. It is possible to reduce the loan balance to the value of the vehicle through Chapter 13 bankruptcy only, not a Chapter 7 bankruptcy.
In a Chapter 13, you will propose a 3-5 year repayment plan to pay back credits with the repayment plan approved by the trustee and court. In this plan, you can propose that your auto lender receive the value of the car rather than the full loan balance when certain conditions are met.
As an example, if you owe $20,000 on your car but the fair market value is only $10,000, a Chapter 13 bankruptcy can strip $10,000 off the debt and give you three to five years to pay the remaining balance along with your other debts.
Cram Down Your Auto Loan Interest Rate
As an added benefit, Nevada bankruptcy law also allows you to reduce the interest rate on your loan. This rate will be determined by the bankruptcy court, but it is typically the prime rate and a bit more. This will likely be lower than your original loan rate, saving you even more. If you are currently paying a high-interest rate on your loan, a reduction of even a few points can make a huge difference.
For example, if you are currently paying a 10% interest rate on a loan with a $7,500 balance with 24 months remaining and a $369 payment, cramming down the auto loan to 4.25% would reduce the payments to just $139 per month with a 60-month (5-year) repayment plan.
There are certain qualifications you must meet to be eligible for a car loan cram-down. The vehicle must have been purchased no sooner than 910 days (or about 2.5 years) before you filed for bankruptcy.
Contact a Las Vegas Car Loan Cram Down Attorney
If you owe more than your car is worth and you are considering filing for bankruptcy, an auto loan cram down can save you a substantial amount of money, allow you to keep your car, and reduce your financial burden after bankruptcy. With a Chapter 13 car loan cram down, you can lower your balance to the car’s value, get a far lower interest rate, and get up to 60 months to repay the loan, even if you do not have long remaining on the current loan. A cram down can help you catch up on payments but it’s also an option if you’re current on your car loan.
Car loan cram downs can be complex, however, and they are best done with the help of an experienced Nevada bankruptcy attorney. Contact Vegas BK today for a free consultation with a Las Vegas bankruptcy lawyer to learn more about whether you qualify for an auto loan cram down in Chapter 13 bankruptcy.