Bankruptcy –

Reducing Car Payments

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    Can I Reduce My Car Payments in Bankruptcy?

    If your car payment is too high or you are struggling to keep up, bankruptcy may provide options to reduce the financial burden — but the answer depends on the type of bankruptcy, the age of the loan, and how the vehicle is used.

    This page explains when and how bankruptcy can reduce car payments, and when it cannot.

    Short Answer: Sometimes — But Not Always

    Bankruptcy does not automatically lower car payments. However, in the right circumstances, it can:

    • Reduce the total amount you owe

    • Lower your effective monthly payment

    • Eliminate high-interest auto loans

    • Allow you to surrender an unaffordable vehicle without liability

    The most powerful options are usually available in Chapter 13 bankruptcy.

    Option 1: Reducing Car Payments Through Chapter 13 Bankruptcy

    A. The “Cramdown” (Reducing the Loan Balance)

    In certain Chapter 13 cases, you may be able to reduce the loan balance on your car to its current fair market value — this is commonly called a cramdown.

    When a Cramdown Is Allowed

    You may qualify if:

    • The car was purchased more than 910 days (about 2½ years) before filing

    • The loan is secured by the vehicle

    • The car is for personal use (not business use in most cases)

    If eligible:

    • You pay only the vehicle’s current value

    • Any remaining balance becomes unsecured debt

    • Unsecured portions may be partially or fully discharged

    This often results in a lower monthly payment and less total paid over time.

    B. Lowering the Interest Rate

    Even if you cannot reduce the principal balance, Chapter 13 often allows you to:

    • Reduce the interest rate on the auto loan

    • Pay the loan through the Chapter 13 plan at a court-approved rate

    Lower interest can significantly reduce the total cost of the vehicle.

    C. Extending Payments Over Time

    Chapter 13 allows you to:

    • Spread remaining car payments over 3–5 years

    • Combine the car payment with other debts into one plan payment

    This can improve monthly cash flow, even if the balance stays the same.

    Option 2: Keeping the Car in Chapter 7 Bankruptcy

    Chapter 7 does not usually reduce car payments, but it can still help in other ways.

    Reaffirmation

    You may choose to:

    • Keep the car

    • Continue making payments under the original loan terms

    This does not lower the payment, but it may make sense if the loan is affordable.

    Surrendering the Vehicle

    If the payment is unaffordable, Chapter 7 allows you to:

    • Give the car back

    • Eliminate responsibility for any remaining loan balance

    This can free up income for transportation alternatives.

    Option 3: Surrender and Replace Strategy

    Some people use bankruptcy strategically to:

    • Surrender a vehicle with an unaffordable payment

    • Discharge the remaining loan balance

    • Obtain more affordable transportation afterward

    This option depends on individual circumstances and should be carefully evaluated.

    What Bankruptcy Cannot Do for Car Loans

    Bankruptcy generally cannot:

    • Reduce payments on a very recent auto loan (within 910 days)

    • Force a lender to rewrite terms outside Chapter 13

    • Lower payments if the loan is already affordable and current

    Understanding the limits is just as important as knowing the options.

    Factors That Affect Whether Your Car Payment Can Be Reduced

    Key factors include:

    • Age of the loan

    • Type of bankruptcy filed

    • Interest rate

    • Vehicle value vs. loan balance

    • Whether the car is necessary for work

    • Your overall financial picture

    Every case is different.

    Common Myths About Cars and Bankruptcy

    “I’ll automatically lose my car if I file bankruptcy.”
    False. Many people keep their vehicles.

    “Bankruptcy always lowers car payments.”
    Not always — but it can in the right situation.

    “I can’t finance a car after bankruptcy.”
    Also false. Many people obtain vehicle financing after bankruptcy, though terms vary.

    When Reducing a Car Payment Makes Sense

    Bankruptcy may be a good option if:

    • Your car payment is consuming too much income

    • The vehicle is worth far less than you owe

    • Interest rates are extremely high

    • You are behind on payments or facing repossession

    swers one of the most searched — and misunderstood — topics.

    Cramdown Explained

    How Chapter 13 Can Reduce Certain Secured Debts

    If you’re filing Chapter 13 bankruptcy, you may be able to use a powerful tool called a cramdown to reduce certain debts. For many consumers, a cramdown can mean lower payments, less interest, and relief from being “upside down” on a loan.

    This page explains what a cramdown is, how it works, and when it can help you.

    What Is a Cramdown?

    A cramdown is a legal provision in Chapter 13 bankruptcy that allows the court to:

    • Reduce the balance of a secured debt to the actual value of the property

    • Lower the interest rate

    • Restructure repayment through the Chapter 13 plan

    In simple terms, the court “crams down” the debt to what the asset is really worth.

    How a Cramdown Works (Plain English)

    If you owe more on something than it’s worth, a cramdown may allow you to:

    • Pay only the current value of the asset as a secured debt

    • Treat the remaining balance as unsecured debt

    • Often pay only a fraction of that unsecured portion

    This can significantly reduce your monthly payment.

    Common Types of Cramdowns

    🚗 Vehicle Cramdown (Most Common)

    If you purchased a vehicle more than 910 days (about 2½ years) before filing Chapter 13:

    • The loan can often be crammed down

    • You pay only the vehicle’s current value

    • Interest is reduced to a court-approved rate

    • The remaining balance becomes unsecured

    Example:
    You owe $20,000 on a car worth $12,000.
    With a cramdown, you may only pay $12,000 as secured debt.

    🏠 Investment or Rental Property Cramdown

    Cramdowns can apply to:

    • Rental properties

    • Investment properties

    • Second homes

    The mortgage may be reduced to the property’s current market value.

    ⚠️ Primary residences are generally not eligible for mortgage cramdowns under bankruptcy law (with very limited exceptions).

    🧰 Other Secured Property

    Cramdowns may also apply to:

    • Furniture loans

    • Electronics

    • Business equipment

    • Personal property with inflated loan balances

    What Debts Cannot Be Crammed Down?

    ❌ Most primary home mortgages
    ❌ Loans that are too new (e.g., cars purchased within 910 days)
    ❌ Certain tax liens (handled differently)

    Even if a cramdown is not available, Chapter 13 still offers other tools to manage secured debt.

    Why Cramdowns Are So Powerful

    A cramdown can:
    ✔ Lower your monthly payment
    ✔ Reduce total debt owed
    ✔ Cut high interest rates
    ✔ Help you keep needed property
    ✔ Make a Chapter 13 plan affordable

    For many clients, cramdowns are what make Chapter 13 actually workable.

    Do I Automatically Get a Cramdown?

    No. Cramdowns require:

    • Proper valuation of the asset

    • Correct timing of the loan

    • Strategic drafting of the Chapter 13 plan

    • Trustee and court approval

    This is why experience matters — mistakes can cost you the benefit.

    Will the Creditor Agree?

    Often, no — and they don’t have to.

    That’s the point of a cramdown:

    • It does not require creditor consent

    • The court can approve it over objection

    • As long as legal requirements are met

    Chapter 7 vs Chapter 13 (Important)

    Cramdowns are:
    ❌ Not available in Chapter 7
    ✔ Only available in Chapter 13

    If reducing secured debt is a priority, Chapter 13 may be the better option.

    Common Myths About Cramdowns

    “Cramdowns are rare.”
    False — they are common in Chapter 13 cases.

    “They only apply to cars.”
    False — other secured debts may qualify.

    “The lender has to agree.”
    False — court approval is what matters.

    “They’re automatic.”
    False — they must be done correctly.

    The Bottom Line

    ✔ Cramdowns can significantly reduce certain debts
    ✔ They are one of Chapter 13’s most powerful tools
    ✔ Eligibility depends on timing, value, and loan type
    ✔ Proper planning is critical

    Talk to a Bankruptcy Attorney About Cramdowns

    Reducing car payments through bankruptcy requires careful planning. Filing without understanding your auto loan options can lead to missed opportunities or unintended consequences. Not every attorney uses cramdowns effectively — but when done right, they can make a dramatic difference.

    Ginsburg Law Group, PC helps clients:

    • Determine cramdown eligibility

    • Value vehicles and property correctly

    • Reduce payments and interest

    • Build affordable Chapter 13 plans

    📞 Call us today for a free, confidential bankruptcy consultation – 855-978-6564 or email us at bankruptcy@ginsburglawgroup.com.

    CLICK HERE for your free case assessment.

    Contact our Bankruptcy Team: bankruptcy@ginsburglawgroup.com

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    BANKRUPTCY TEAM

    AMY GINSBURG – aginsburg@ginsburglawgroup.com

    GRACIE KLEIN – gklein@ginsburglawgroup.com

    NICOLE LOMBARDI – nlombardi@ginsburglawgroup.com