We are often asked by our clients what can happen to their vehicles while they are going through a Chapter 13 Bankruptcy case.
A chapter 13 trustee will never sell a debtor’s auto no matter the value. Also, a chapter 13 will permit a debtor to save their auto, if they are behind with their finance or lease payments.
The filing of a chapter 13 stops the finance company’s ability to repossess the auto. However, immediately upon the filing, the finance company will request proof of auto insurance that adequately covers the finance company as the loss payee or lien holder. If the debtor cannot provide such proof, the finance company will be permitted to repossess the auto.
A chapter 13 debtor has various options regarding their finance payments. A debtor may wish to surrender the auto and classify the financing debt to general unsecured, which is the same as credit card debt. Based on the debtor’s income, expenses, and asset values, the debtor may pay all, none, or a portion of their unsecured debt. If the debtor is current with their finance payments, he may wish to keep the auto and make the monthly finance payments directly to the finance company. Under this scenario, the bankruptcy filing will have no effect on the auto financing.
If someone is behind with their auto finance payments, they may make the regular monthly finance payments directly to the finance company, in addition to paying the arrears through their monthly trustee payments, the same as for mortgage arrears.
If the debtor purchased and financed their auto more than 910 days prior to the bankruptcy filing, he may “cramdown “ the financing debt. This means that the debtor may be able to pay to the finance company only the fair market value of the auto, plus a fair rate of interest, through the bankruptcy payments. Typically, this means that the debtor can keep the auto, by paying less than the balance due on the financing. Also, the debtor can make these payments over a period of 60 months, which may lengthen the payment period that was required under the original financing agreement. Under this scenario, the debtor need not make regular monthly finance payments directly to the finance company, as all payments are paid through the bankruptcy plan.
Also, the debtor may be able to payoff the entire loan, plus a fair rate of interest, through the bankruptcy plan. Under this scenario, the debtor may also, lengthen the time period for repayment of the loan, that extends beyond the original financing agreement. Again, the debtor need not pay the finance company directly.
If the debtor is behind with auto lease payments, he must cure the arrears promptly, through the bankruptcy plan and within the lease expiration period. In addition to paying the arrears through the bankruptcy plan, the debtor must make regular monthly payments to the finance company. The debtor cannot “cramdown” a leased auto.
The bankruptcy lawyer in NJ., Robert Manchel, can be reached at 1 (866) 503-5655, to explain how your auto can be saved by filing a bankruptcy case.