One of the draws of Chapter 13 New York bankruptcy is the additional option for keeping an automobile: the cram-down. For cars older than 910 days, the debtor can ask the bankruptcy court to adjust the auto loan down to the car’s current market value. It’s too bad debtors can’t do this with their houses.
A related issue, though, is whether a debtor’s car will last through the three-to-five-year repayment plan. If it doesn’t, or if it becomes so expensive to maintain that the debtor needs to finance repairs, then the debtor will find it difficult to cover the costs because the repayment plan will probably be taking up all the debtor’s income. Unless the car is totaled and the loan balance is covered by insurance, a cram-down will not do any good. The payments must still be made.
Consequently, it’s a wise idea to consider the likelihood of a car’s breakdown before filing in chapter 13. If you have reason to believe it will last five years or more, then hold on to it, cram-down or no. If you don’t think it will last that long, then it’s time to buy a new one while possibly selling the old one as necessary.
Debtors who obtain a new auto loan to finance this vehicle can expect the payments to last through the chapter 13 plan. There are two ways to go about this: either pay the auto loan outside the chapter 13 case, or include the payments within the plan but pay off the car in full upon completion. If the car is brand new, then keeping the payments outside the plan is most likely going to be the better option. Purchasing a used car, on the other hand, might help ensure that your chapter 13 plan is confirmed because other creditors will be paid more thanks to the cheaper loan payments.
Naturally, buying a new car during bankruptcy might raise the trustee’s suspicions, but so long as the vehicle is necessary for the debtor (especially commuting), done in good faith, and not meant to stymie the other creditors, the bankruptcy court will allow it.
As for the previous car, if you still owe money on it and can’t resell it for enough to satisfy the loan, then you will surrender it to the lender. Any remaining balance after sale will become an unsecured debt that will be paid at least in part under the repayment plan.
It can be a gamble determining whether a car will last through a chapter 13 New York bankruptcy. If it breaks down, debtors will need to find a way to obtain a new vehicle, but buying a new one might mean paying a larger portion of one’s net income to creditors than for just one vehicle. It’s definitely a reason to discuss a potential chapter 13 case with a lawyer before filing.
For answers to more questions about automobile debt, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 Bankruptcy Lawyer Brooklyn NY Bruce Weiner for a free initial consultation.