• Law Office of Christopher R. Chicoine

How Can Chapter 13 Bankruptcy Help Me Keep My Car?

First, filing chapter 13 (like any chapter under the Bankruptcy Code), will immediately create an automatic stay preventing all types of collection activity. This includes not only a freeze on any pending lawsuit against you but seizure of your assets such car repossession.


Note, if you continue to miss monthly payments to the car lender after you file chapter 13, then this would be “cause” for relief from the automatic stay. Under § 362(d)(2), cause for relief from stay exists in the form of lack of adequate protection to the secured creditor. Regular monthly payments post-petition is seen as adequate protection to the car lender. When payments cease, the car lender is lacking adequate protection because the car is depreciating in value and no payments are being made.


Second, the chapter 13 debtor is allowed to present a plan that “crams down” the car lender. Chapter 13 allows the debtor to modify liens (other than personal residence mortgages) by reducing the amount of the lien to the value of the collateral it secures. Cram downs also allow the debtor to reduce the contract interest rate to a market rate of interest.


Example: Debtor D owns a car that has depreciated in value to $10,000. Creditor C holds a lien against the car in the amount of $20,000. Since D had bad credit, the interest rate on the financing agreement is 10% per year. D lost his job and has not been making payments. C sends the repo company to repossess the vehicle. How can chapter 13 help?


If D files bankruptcy before repo company can physically seize the car, then the automatic stay will immediately bar repossession. D will get a breathing spell to present a chapter 13 plan. In that plan, since the car is worth $10,000, he will recognize a secured claim of C in the amount of $10,000 payable at 5% interest (cram down provisions allow). The remaining amount owed on the contract will be treated as an unsecured claim (often get paid pennies on the dollar). If D makes payments under these terms after plan confirmation then creditor C generally won’t be able to repossess the car (assuming no demand for reaffirmation agreement). But, if D misses payments either before the chapter 13 plan is confirmed, or defaults under the Plan, C may be able to seek stay relief to repossess the car.


This will allow car payments to be more affordable to increase the likelihood D can avoid repossession.


Attorney, Chris Chicoine

www.chrischicoinelaw.com

Christopher R. Chicoine, PLLC


DISCLAIMER - THIS IS FOR INFORMATION PURPOSES ONLY; IT'S NOT LEGAL ADVICE. DON'T ACT OR REFRAIN FROM ACTING BECAUSE OF THIS. NO REPRESENTATIONS OR WARRANTIES OR ANY KIND ARE MADE. CONSULT AN ATTORNEY.




4 views0 comments