Car Loans and Chapter 13 Bankruptcy

If you are making payments on a car loan, and are struggling with your bills, you may want to consider filing Chapter 13 bankruptcy. This form of bankruptcy affects car loans in many different ways. If you want to surrender your car to the creditor and walk away from the debt, bankruptcy may allow you to discharge these types of loans with no additional payments. On the other hand, you don’t have to give up your car when you file Chapter 13 bankruptcy. You can continue to make payments under the original contract terms and use the bankruptcy case to address your other debts or you can include repayment of the car loan in your reorganization plan.

Including repayment of the loan in the plan can provide several benefits to the debtor. First, if you financed the car loan more than 910 days before filing the bankruptcy case you may be able to reduce the payoff amount on the loan. Second, if your car loan has a high interest rate you can decrease this rate by including the claim in the plan. Third, you can stretch out repayment of the claim to three to five years by including it in the Chapter 13 plan and in doing so decrease your monthly payment. The cumulative effect of these changes may drop your payment on the car loan several hundred dollars a month and save you thousands of dollars over the life of the loan. Discuss your specific situation with an attorney to determine if you qualify for Chapter 13 bankruptcy and to see if filing bankruptcy benefits you.