In a Chapter 13 bankruptcy, you have three possible outcomes with regards to car loans. First, you can keep your car and other vehicles and continue paying it off under your repayment plan. Second, you might lose your vehicle if the payment is exceptionally high and you have a high level of non-exempt equity. Third, it might be possible to reduce your amount owed in some situations. Read on to know all about chapter 13 and car loans.
Car Loans In Chapter 13
- How equity works with cars: You must pay all of your unsecured creditors and amount that is equal to the value of the non-exempt property you own, that is how chapter 13 will play out. So that means if you have a fair bit of non-exempt property, it could add up to your repayment plan. Fortunately, cars depreciate faster than they accrue equity, so car loans are rarely ever affected by excess equity.
- Reasonableness in car payments: Your disposable income will be calculated during a chapter 13 and only reasonable amounts can be set aside as living costs. If your car is an opulent, luxury car that costs a bomb to pay and maintain, the courts might not be too keen on allowing it as a reasonable expense. The cars that get through are usually cars that are small and relatively inexpensive considering the state of your finance.
- Keeping the car: If there are a few payments that are pending with the car loan company, you need to make sure you pay them off within the repayment plan. Coming out of it, you cannot have any arrears. The remaining can be paid off according to plan, but there must be none pending at the end of the 3 or 5-year plan. Then you can keep your car.
There is a provision under the automatic stay where you can keep your car from getting repossessed by the lender. The stay protects you from it. Your Houston bankruptcy lawyer can guide you through the process of protecting your car in bankruptcy.