Gauss Law Firm- Denver Bankruptcy Lawyers

Cramming Down a Car Loan in Chapter 13

This means lowering the amount of the loan on the car to match the value of the car, and reducing the interest rate. This bankruptcy code provision, can be helpful to debtors who are upside down (they owe more than it is worth) with a car loan. However, the main requirement is that the car loan be fairly old in order to accomplish this loan reduction.

The bankruptcy code states in 11 U.S.C. 1325 that a car loan may not be “crammed down” unless the purchase money security interest was granted more that 910 days from the date of the bankruptcy filing. In English, this means that you cannot cram down your car in a chapter 13 unless the you bought your car 2.5 years ago or more.

If your loan was due to expire during the chapter 13 plan, you may also be able to extend the loan until the end of your chapter 13 plan. 

You can replace your current interest rate with a commercially reasonable interest rate. Car loans are often 12% to 18% , or even 22%, depending on circumstances whereas, in a chapter 13 a lawyer can generally get your interest rate to the prime rate plus 1% to 3%.  This would currently mean an interest rate of around 5%.

The downside of cramming down a car is that your payments must be made through the chapter 13 office which means all payments are hit with a 10% administrative fee. For this reason, only cars on which you are significantly upside down (and were purchased more than 2.5 years ago) are typically included in the plan as crammed down cars.

If you have questions about what a chapter 13 could do for your secured loans, either a home loan (it is sometime possible to remove a second mortgage from a residence in chapter 13) or a car loan as is discussed in this article. Please call the law firm at (303) 501- 4028.