Cramming down a car in Chapter 13 bankruptcy

August 12, 2010 | by Christopher Hewitt

Chapter 13 has some powerful aspects that can really help people with financed vehicles. In a chapter 13 if you owe more on your vehicle than the current market value(blue book) then we can restructure your financing so that you pay on what the car is actually worth. This only works if the financing is more than 2.5 years old so you can’t buy a new car and walk off the lot and get it crammed down, but it works for a lot of people and can save you quite a bit of money.

I have had clients that have been able to fund a chapter 13 plan just in the savings that they made by cramming down their car. If you owe 20k on a car and its only worth 10k then just the money you save in financing would give you 200 a month to fund a chapter 13 plan.

Although Chapter 7 can be a faster way to get debt free, a chapter 13 with its cram downs and lien strips on real property can be a valuable way to put yourself in a great position to come out ahead when your chapter 13 debts are discharged.

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How does debt consolidation affect credit scores?

Initially, it might cause a slight dip due to credit inquiries. However, consistent payments can improve your credit score over time.

What is the difference between debt consolidation and debt settlement?

Debt consolidation involves taking a new loan to pay off debts, while debt settlement is negotiating to pay less than you owe. Settlement can negatively impact your credit score.

What are secured vs. unsecured debt consolidation loans?

Secured loans require collateral (like a house or car), usually with lower interest rates. Unsecured loans don't require collateral but typically have higher rates.

Is debt consolidation right for me?

It depends on your total debt, interest rates, credit score, and payment capability. It's suitable if you can pay off your debt within five years and secure a lower interest rate than your current debts.

Should I consider long-term financial planning?

Yes, debt consolidation should be part of a broader financial strategy including budgeting, cutting expenses, and building an emergency fund.

How do Chapter 7 and Chapter 13 bankruptcies in California differ?

Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 allows debt restructuring over a set period, usually three to five years.

Can my spouse's bank account be garnished for my debt?

Bankruptcy laws offer protections against such actions, but specifics depend on individual cases and state laws.

How can I learn more about my options?

Consulting a California bankruptcy attorney can provide clarity. Firms like The Law Offices of Christopher Hewitt offer free consultations to explore debt relief paths.