It is not uncommon, particularly with buyers that have poor credit, that an auto loan be higher than the actual value of the vehicle itself. There are several reasons why this can become a problem. The owner may be making payments that are more than they can afford and if an accident or theft were to occur, the insurance would not cover the loss. In this type of incident people are then left with the remainder of the loan to pay on their own, even though they no longer have a vehicle.
In many instances where people are seeking bankruptcy protection this is a common problem. With no equity in the property they own, people are unable to sell or refinance to make their situation more comfortable. With bankruptcy, there is the opportunity for some to Reduce car loan to value in order to make the payments affordable and so the owner does not pay more than they vehicle is worth.
The process is called a cram down and it is an option when filing a Chapter 13 bankruptcy. The loan remaining on the vehicle will be reduced to its current fair market value and, in some cases, the interest rate can also be lowered and the length of the loan could be extended to lower the payments even more.
Not all vehicle loans are eligible to Reduce car loan to value. The loan holder must have been paying on the loan for at least 910 days (approximately 30 months) prior to the date of filing bankruptcy. They can only reduce the loan to the value of the vehicle and not below and they must make all payments after the reduction or the vehicle could still be repossessed.
If you are filing bankruptcy, it is worth discussing the matter with an attorney to see if keeping property may be possible. This type of protection is also available for mortgage loans and other high-ticket items, but conditions apply to each of these circumstances.
