Lots of people ask if they can modify their car loans as they have with their home mortgage. The answer is yes, subject to some restrictions which require you among other things to be in an active Bankruptcy.
First, you cannot get any form of modification if you file for Chapter 7 Relief. You can though in a Chapter 13 if you meet certain specific criteria. This maneuver is known as a “cramdown”. If you are eligible, you may be able to enjoy two types of relief. First, you will only have to pay back that portion of the outstanding loan equal to the vehicle’s current fair market value. Second, your monthly payments can be reduced.
The mandates for a cramdown require you: to be at least 910 days into your loan (about 2 ½ years) and that your vehicle be worth less than you owe on the subject obligation. Even if you have not had your vehicle loan for the requisite 910 days, you may still be able to enjoy the benefit of lowering your current interest rate to reduce your monthly obligation payment. So either way, you can still come out a winner.
Your Chapter 13 Plan will range in life from three to five years. You are allowed to extend your loan through the length of the plan, which will reduce your monthly payments. The principal due on the loan can only be reduced if your car is worth less than what you owe. You will need to prove to the satisfaction of the Court what the automobile’s current value is. The lender on the other hand will try to convince the Court that your assessment is wrong.
In both cases of reducing interest or lowering the principal due, you must complete the Chapter 13 Plan. You cannot convert your case to a Chapter 7 Bankruptcy or have it dismissed without losing these opportunities.
If successful, you have saved yourself thousands of dollars with the help of an experienced bankruptcy law firm, like Pitts & Burns.