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Can I Reduce The Amount That I Owe On My Car When I File For Bankruptcy?


There are many reasons that filing a St. Louis Chapter 13 bankruptcy may be beneficial to a prospective client. One such reason is the ability of the debtor to modify the rights of holders of secured claims. This is commonly referred to as a “cram down,” and is typically applied to car claims. “Cramming down” a claim means that, within your Chapter 13 bankruptcy plan, you may have the ability to modify the contract you made with the creditor.

The harsh reality is that as soon as you drive a car off the lot, it loses value. By the time they file bankruptcy, many individuals find themselves owing way more on their car than what the car is actually worth. This is known as being “upside down” on the car. Unfortunately, when you signed all that paperwork at the dealership you agreed to pay the entire amount owed, with interest, regardless of the future value of the vehicle.

A Missouri Chapter 13 bankruptcy can allow you to split the car creditor’s claim into two separate parts: the secured portion and the unsecured portion. The secured portion is determined by the actual value of the vehicle, which is typically determined using Kelly Blue Book or N.A.D.A. values, depending on the district in which you file. If the value of the car is less than what is owed, then this difference is known as the unsecured claim.

Here is an example of how a cram down works: Suppose you have a 2000 Ford Focus that is worth $5000.00, but you owe $15,000.00. Chapter 13 may allow you to pay the secured portion ($5000.00), at the court’s interest rate, over the life of your bankruptcy plan. The remaining $10,000.00 will be classified as an unsecured claim and will typically be paid little to nothing over the life of your Chapter 13 plan. As long as you receive a discharge of your Chapter 13 case, the underlying unsecured debt will be wiped out.

Cram-downs are not available to every Chapter 13 debtor. In order for a car claim to be eligible for cram down, you must have owned the vehicle for at least 910 days (about 2 ½ years) prior to the date of filing of the bankruptcy case. Otherwise, you will have to pay full balance owed on the loan if you wish to retain the vehicle. Cram downs can be used on other types of personal property, such as household goods or furnishings, but the provision does not apply to real estate.

If you qualify, a cram down can save you significant money during the course of your Chapter 13 plan. Understanding the basics of the cram down can help you make an informed decision regarding whether Chapter 13 bankruptcy is right for you. The St. Louis bankruptcy attorneys at The Bankruptcy Company have reduced the amount that is owed on vehicles for years. Our staff is ready to put you on the road to financial freedom, and get you the fresh start / clean slate that you deserve.

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