If you, like many people, owe way more on your car than it's currently worth, then a Chapter 13 bankruptcy might be able to fix that for you.

Should you file a Chapter 13 bankruptcy (the "payment plan" type of bankruptcy) for only that purpose? Probably not, but if you're going to file a Chapter 13 anyway, then that's another large benefit it might be able to give you. Let's see how that works.

If you bought your car more than 910 days (about 2 1/2 years) before filing a Chapter 13, then the loan for the purchase of the car may be "crammed down" to the current value of the car. For example, if the balance owed on your car loan is $25,000 and your car is now worth only $15,000, after the cram down you would only have to make payments on that $15,000 in order to keep your car. The other $10,000 would become unsecured debt (like credit card debt) and be paid the same percentage as other debts of that type, possibly a quite small percentage.

What if you bought your car more recently than that? There are three exceptions to the 910-day requirement for a cram down.

1. The loan on your car was taken after you bought your car, not to buy it – If you used your car to secure another loan, or refinanced your original car loan, the 910-day requirement doesn't apply.

2. It's a business vehicle instead of a personal vehicle – If it's used in your business instead of for personal use, the 910-day requirement doesn't apply.

3. The car is driven by someone else instead of you – If this is the case, the 910-day requirement doesn't apply.

• In addition, you might be able to reduce the interest rate for the loan. We won't say more about that here; your bankruptcy attorney can discuss that with you.

This, like many things about bankruptcy, is a "don't try this at home" type of thing, but one that an experienced bankruptcy attorney can do for you.

For a free consultation, click here or call 415-342-4666

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