I am upside down on my car loan and am struggling to make the payment, but I really need my vehicle. Can an Alabama bankruptcy help me?

Possibly. In a Chapter 13 bankruptcy you can, under certain circumstances, do what is called a cramdown.  If you meet the criteria for a cramdown, you are allowed to only pay back the current fair market value of the vehicle, not the total amount owed.

For example, let’s assume you bought a car 2 ½ years ago, financed $25,000.00 and because your credit was not the best, you have a 12% interest rate.  Your payments would be about $556.00 per month.  You would still owe $14,352.00.  Let’s say, per the NADA Used Car Guide you, the vehicle is now worth $8,000.00.  By putting the vehicle in your Chapter 13 plan you could (1) extend the loan to 5 years, (2) reduce your interest rate tremendously (plan rates are currently at 5 to 5.25%, (3) in effect reduce your car payment to $152.00 (less than 1/3 the previous payment).

So, what’s the catch?  First, you must have had your car loan for at least 910 days, basically 2 ½ years in order to qualify for a cramdown.  If you have not had your car for 910 days, you can still lower the interest rate, but not secured principal.  Second, by extending the loan through the length of the plan, you may not be able to obtain the title on the vehicle until the end of the 5 year plan.  Third, to maintain the benefit of the cramdown, you normally must complete your Chapter 13 plan.  If your case is dismissed or you convert to a Chapter 7, some issues may arise.  Fourth, your car must be worth less than the amount owed.  If your car is worth the amount owed or more, then there is nothing to cramdown; however, you may still be able to lower the interest rate on the remaining amount owed on the loan.

A Chapter 13 bankruptcy may be able to fix many of your cash flow problems.  Please educate yourself and do not let yourself continue to struggle for no reason.  Order my book by clicking here and/or contact me or another experienced bankruptcy lawyer immediately.
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