More than seven million Americans are now more than 90 days late on their car payments. For those who have fallen behind on their car payments, the threat of losing their car to repossession is incredibly frightening. Loss of a car can mean loss of a job. Loss of a job can lead to even more trouble. Having your car repo’d can be the beginning of an unfortunate downward spiral.
So, what can you do when you are several payments behind on your vehicle but would like to keep it? The most obvious answer is to “cure” the arrears, which really just means catch up the payments and get current. This is typically easier said then done. “If I had the money, I wouldn’t have fallen behind in the first place.”
A bankruptcy filing can actually provide several options to help save a car that is being threatened with repossession. The filing of a bankruptcy petition immediately stops all repossession actions. In some cases, a bankruptcy filing can get a car back even AFTER the repo has occurred. The filing of the bankruptcy can provide some breathing room to keep away the repo man and also offers several strategies to help people keep their car (without having to cure all the arrears).
My favorite strategy to help people keep their car is to do a “cram down.” Through a Chapter 13 Reorganization Plan, in certain cases, we can get people a much better deal on their car. Here’s how it works:
- Client bought a car three years ago and financed $25,000 @18% with payments of $500/mo.
- The instant the client drove the car off the lot the car depreciated rapidly.
- Car is now worth about $8,000 (Kelley Blue Book) but the client still owes about $18,000 @ 18% and is three months behind on the $500/mo payments. Repo man is coming!
- We file a Chapter 13 bankruptcy for the client (immediately stopping the pending repo) and do a “cram down.” Cram down basically means to pay the value of the car. We put the car into the Chapter 13 bankruptcy plan. The client no longer makes payments directly to the car lender but pays for the car through the bankruptcy plan. Here’s the best part: client only has to pay the VALUE of the car (now $8,000) and NOT the full amount owed of $18,000. We ALSO get to lower the interest rate to about 5%! The remaining balance owed on the car ($10,000) is discharged with the rest of the client’s unsecured non-priority debts. Once the client completes the plan payments and gets the discharge, the client gets the title to the car.IT IS AWESOME!
I’ve helped people utilize the cram down strategy countless times to not only keep their car (at a much better deal), but also eliminate the majority of their other debts. If you are struggling with a car payment or other debts, feel free to reach out. I don’t charge for a quick phone call where we can discuss your situation and see how I can help you.