If you're facing a Chapter 13 bankruptcy in Philadelphia, you have a better chance of keeping your vehicle because a Chapter 13 allows you to repay your debts. Sometimes, however, you owe much more on your loan than your car is worth. In this case, you may be able to cramdown your auto loan.
What's an Auto Loan Cramdown?
A cramdown is a process that reduces the balance on a car loan, or other secured loan, when you're in Chapter 13 bankruptcy. Cramdowns aren't available for other types of personal bankruptcy, such as Chapter 7.
When you cram down your auto loan, your lender is agreeing to reduce the balance of your loan to the value of the vehicle. This is particularly helpful if you have negative equity but need to save your car.
Using a cramdown still includes your loan in the bankruptcy repayment plan, but you only pay the value of the vehicle. The rest of the unpaid loan balance you owed is then included with your other unsecured debts. These debts receive little to no payment before they're wiped away in your discharge.
This means a cramdown is often a good option for your creditor, as well. When they repossess your car to resell, they’re likely only get the value of the vehicle anyway, and they still have to pay for the recovery service for the repossession.
Qualifying for a Cramdown
If you’re a resident of Philadelphia and think a cramdown is the right choice for you during your Chapter 13 bankruptcy, it isn't as simple as just checking a box on your filing paperwork. Because there's a risk of people attempting to cramdown a loan on a newly purchased car, federal guidelines restrict the use of this privilege.
You're only able to cram down your loan if you've had your vehicle for at least 910 days. Your loan amount should also be significantly higher than your car’s value. Keep in mind that a lender may not agree to a cramdown, and still seek repossession.
The good news is that if your loan qualifies for cramdown, you often end up paying even less than you anticipated. This is because cramming down your loan often also allows you to lower your interest rate. With a lower interest rate, and only paying the market value of your vehicle over a three- or five-year repayment plan, you typically end up making lower monthly payments than you would outside of bankruptcy.
Bankruptcy Doesn't Stop Auto Lending
Bankruptcy doesn't stand in your way when you're looking for an auto loan after a bankruptcy discharge. Once you successfully complete your bankruptcy, you stand a good chance of qualifying for a new loan. Bankruptcy leaves you with a virtual clean slate – even if it's one with lower credit.
It doesn't have to be difficult to get a car loan after bankruptcy in Philly as long as you're prepared to work with the right type of lender. If you don't know where to start, we can help.
Auto Credit Express is teamed up with a large number of special finance dealerships that can help you get an auto loan in Philadelphia. To get matched to a dealer in your area, fill out our easy, zero-obligation car loan request form. After you do, we'll get to work finding a bankruptcy auto dealership for you!