If you are significantly late on several car loan payments, your lender may likely exercise their right to repossess your car. Of note, Kentucky law may permit this without a formal court order or prior warning, as long as they do not use physical force, threaten force, or enter an enclosed space without permission. From here, they may take your car to auction and attempt to sell it to recover the money you still owe on the loan. Before they can make this sale, though, you may try to garner a Kentucky Bankruptcy Court’s protection through a bankruptcy petition. Further, please continue reading to learn whether you should attempt to save your car through Chapter 13 and how an experienced Louisville, Kentucky Chapter 13 bankruptcy lawyer at Schwartz Bankruptcy Law Center can help you make a financially wise decision.
What does it mean if my car loan is “underwater?”
While a bankruptcy filing may offer you immediate financial relief, it is also associated with long-term monetary consequences. With that being said, before you decide to follow through with this legal case, you must carefully consider whether your car is worth protecting. For this, you should figure out if your car loan is “underwater.” This means your loan balance is higher than your car’s market value. This may happen because your car depreciates faster than you could pay down the loan, your loan includes add-ons like warranties, or other extenuating factors.
And so, having an underwater car loan is particularly stressful because, even when voluntarily surrendering your car, the sale may not completely cover what you owe, and you may be left with a deficiency balance. In your Chapter 13 bankruptcy case, this deficiency balance may only be discharged if you complete your three- to five-year repayment plan successfully. Otherwise, once the automatic stay is lifted, your lender may reserve the right to go after this balance.
Is my car worth saving in a Chapter 13 bankruptcy case?
In short, with an underwater car loan, your car may only be worth saving in a Chapter 13 bankruptcy case if your lawyer can effectively execute what is known as a “cramdown.” Namely, with a car loan cramdown, the Kentucky Bankruptcy Court may reduce the secured portion of your loan to the car’s fair market value. This is while the remaining balance may subsequently be treated as an unsecured debt that can be further reduced or ultimately discharged.
Overall, when a cramdown is added to your bankruptcy case, your total repayment costs may be significantly lowered, and therefore, your monthly payments toward your court-ordered repayment plan may be far more manageable. It is worth mentioning, though, that the court may only approve this motion if your car was purchased more than 910 days before your Chapter 13 bankruptcy filing date. Plus, if you can reasonably demonstrate that this is not a luxury, non-essential car, but rather, parting ways with it would cause you a great deal of hardship.
So, if you wish to gain more clarity on the situation you are dealing with, the best way to get it is by consulting with a skilled Louisville, Kentucky consumer bankruptcy lawyer. Get in touch with our team at Schwartz Bankruptcy Law Center today.
