Bankruptcy tips: cramming down a car

If you are thinking of filing for bankruptcy, and still need basic transportation to get to work and tote your family, you could be helped by the notion of “cramming down a car.”

Don’t worry; it’s nothing like the picture at left! Actually, its the car loan that you want to cram down, not the car itself.

The idea is that in Chapter 13 bankruptcy, debtors can propose to restructure loans in their Chapter 13 plan. For example, if you have $10,000 outstanding on your car loan, but you’re sure the vehicle is only worth $5,000, a cram down could help.

Under the bankruptcy code, you would be allowed to pay off the loan through the plan by paying just $5,000 plus interest (cramming the loan down, in bankruptcy parlance) during the life of the plan, instead of the full $10,000 you owe.

If you were proposing a 60-month plan, you would have $83.33 (plus a little interest) of your plan payment go towards the car every month, and when you completed the plan, the car would be yours and the loan considered paid off.

Catches? Principally two. First, this only applies to chapter 13 bankruptcy, so you need to be able to qualify for that chapter. Second, you have to have bought (or financed) your vehicle more than 2 1/2 years before filing your case (910 days, to be exact). So you can’t just drive a car off the lot and then cram down the loan.

If you have questions on this, or any other aspect of bankruptcy law, you can call me in North Andover at (978) 975 – 2608, and we can discuss the situation.


By Doug Beaton

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