Chapter 13 debtors may keep motor vehicles that are the collateral for a loan in a Chapter 13 bankruptcy case. Debtors that are current may continue to make monthly payments on the loan inside or outside of their Chapter 13 repayment plan. Debtors that are not current may pay any payment arrearages in a Chapter 13 repayment plan. Whether current or not, debtors may also cram down a loan on a motor vehicle if certain requirements are met.
If a debtor is current, the Chapter 13 trustee may allow the car loan to be paid outside of the Chapter 13 plan. However, the trustee may want to monitor such payments and may require the payments to be made inside, or provided for within the repayment terms, of the chapter 13 plan. This means that the Chapter 13 trustee will collect the car payment each month and pay the creditor.
§ 1322(b)(1) of Title 11 states that a Chapter 13 repayment plan “ may modify the right of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence…” Thus, the cram down of a secured claim may modify key contract terms by reducing the loan balance based on the collateral's value, as well as lowering the interest rate and decreasing the term of the car loan.
A Chapter 13 bankruptcy debtor may cram down an automobile loan, investment property mortgages, or other loans for items of personal property such as household goods, electronics, and furniture. However, § 1322 of the Bankruptcy Code specifically provides that a chapter 13 debtor may not cram down a mortgage on a principal place of residence.
Provided that the present value of the future stream of payments in the chapter 13 plan pays the secured claim in full and the cram down provisions of the Bankruptcy Code are satisfied, the bankruptcy court will confirm the debtor's Chapter 13 plan.
Cram downs of motor vehicle loans are typically used in Chapter 13 cases as long as the vehicle meets an important requirement: the motor vehicle must have been purchased at least 910 days, or almost 2 1/2 years, prior to the filing of the bankruptcy case.
A "cram down" works as follows: If a car is worth $12,000 and is collateral for a loan with a balance of $22,000, then a debtor may cram down the loan to $12,000 in a Chapter 13 repayment plan as long as the car was purchased more than 910 days before the case filing. The remaining $10,000 of the balance of the loan will be included with other unsecured debts in the bankruptcy case. Only a portion, if any, of this unsecured debt, will be paid in the Chapter 13 plan, and the remainder will be discharged when the Chapter 13 plan is completed and the court grants a discharge order. The motor vehicle will be owned free and clear at the end of the bankruptcy.
Cram downs require the knowledge of specific details of a secured claim and the application of applicable bankruptcy law. The attorneys at Loan Lawyers may help any potential debtor accurately make this analysis. The experienced South Florida defense attorneys at Loan Lawyers are here to help you if you are considering bankruptcy. To schedule a free consultation at any of our three conveniently located offices, contact Loan Lawyers today by calling (888) FIGHT-13 (344-4813).