How a Bankruptcy "Cram Down" Can Reduce Your Car Payments

If you are struggling to pay your monthly car payments and you need to reduce either your monthly payment or your interest then you should consider a vehicle cram down. Chapter 13 bankruptcy allows you to cram down the value of your vehicle to the fair market value and in many instances reduce the interest that you pay on the loan. If you are making monthly car payments on a vehicle that is worth less than what the outstanding balance on the car loan is then a vehicle cram down can help you make your vehicle payments more affordable.

How Does A Cram Down Work?

If you have a loan payment for your vehicle then it is considered a secured payment that you must generally pay back in full in order to keep your vehicle. If your vehicle is worth substantially less than what is owed on the loan and the vehicle was purchased more than 910 days (2.5 years) before filing for bankruptcy then you can propose to pay back the fair market value of the vehicle. The interest rate that you will propose in the plan is the prime rate of interest plus a risk premium that at most is 3%.

An example of this is where you purchased a vehicle 910 days ago, the outstanding loan is $15,000 with a 10% interest rate and the vehicles fair market value is $8500. In your Chapter 13 plan you will propose to pay back only what the current value ($8500) of the vehicle is at a prime rate of interest plus a risk premium. The remaining loan amount of $6500 is treated as unsecured and paid back in the same proportion as the rest of your unsecured creditors.

How Does A Cram Down Help You?

A vehicle cram down can help you through either extending the time in which you have to pay back your car loan, reducing the interest and monthly payment amount, or simply reducing the overall outstanding balance that you must pay back.

If you need a longer term in order to pay back the vehicle loan then a cram down can allow you to extend your vehicle payment to as far as 5 years. If you cannot afford to pay your current monthly car payments, then extending the time to pay back the loan can make your payments more affordable.

A cram down reduces the secured amount owed on the vehicle, and generally reduces the interest rate on the loan. Reducing these amounts reduces the monthly payment that you need to make in order to keep your vehicle.

Chapter 13 Bankruptcy can be a good option for individuals having difficulty making their car payments. A cram down can make your vehicle payments more affordable and can help you keep your vehicle.