Can I use cramdown to lower my car payment and interest rate?
You can rewrite your car loan.
You may have heard of the term, “cram down” as you’ve researched Chapter 13 bankruptcy. This part of the bankruptcy code allows you to rewrite your car loan to lower the amount that is due, and often times, lower your interest rate.
In order for your loan to qualify for cram down, it must be at least 910 days old, or 2 1/2 years. This may help you determine the best timing for your filing in case your loan is nearly that old and you can wait.
It is important to note, that if your loan is not old enough to qualify, we may still be able to modify the interest rate you pay. Usually we can lower interest rates on car loans to 5 or 6 percent.
Let’s say you bought a 2008 Chevy Silverado in June of 2010. The loan was for $30,000 and set to be paid in 6 years, or 72 months at a 12% interest rate. Your payment would be $586 per month. In January 2013, your balance, or current principal due, would still be $20,033 and you would have 42 payments left that would add up to $24,612.
The usual problem in this scenario is the vehicle will often be worth a lot less than what is owed. That is why cram down is so important. In this case, the Silverado may only be worth $15,000 depending on model, miles and options. If you’re driving a Hyundai, then cram down can be very helpful as you avoid paying for lost value in collateral.
If you lower the interest rate on the Silverado from 12% to 6% and lower the principal from $20,033 to $15,000, then you can radically lower your total cost to finally own the truck. You must pay off the loan in the life of the Chapter 13 plan. So in a 3 year plan, your payment would drop to $456 and you would get the title to the truck 6 months earlier than originally scheduled and only pay a remaining total of $16,416 instead of $24,612.
If you were in a 5 year plan, your new truck payment would be $290.
Work closely with your MyBankruptcyTeam attorney to analyze the timing of your case how to maximize a possible cramdown on your vehicle loans.
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