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Chapter 13 and vehicle repossession

Filing for bankruptcy does not always mean that a person has to surrender all his or her assets, including a new car. Kentucky residents might be relieved to learn that a Chapter 13 bankruptcy offers three options to help them keep their car.

One way that a Chapter 13 bankruptcy, also called a reorganization bankruptcy, can help people keep their car is via cramdown, an option exclusive to this type of bankruptcy filing. Cramdown permits people to pay only for the value of their vehicle, which will reduce their auto loan payments. This option is only available to people who have purchased a car at least two and a half years prior to the bankruptcy filing and if the loan’s balance is much greater than the car’s current value. The difference between the original loan amount and the vehicle’s value is then turned into unsecured debt.

A further way this type of bankruptcy filing allows people to keep their car is by setting up a repayment plan to help manage their finances. Through this plan, which is overseen by a trustee, people have the opportunity to catch up on their overdue car loan payments but only if they consistently make their monthly payments. A third option is the automatic stay. While this is in place, creditors are not permitted to collect a person’s debts, including repossessing a person’s vehicle. If the payments become a hardship, people also have the option to surrender their car to their lender; however, they are still responsible for paying off the car’s balance as outlined in their repayment plan.

Sickness, a loss of employment or unforeseen circumstances can easily lead people into financial difficulties and overwhelming debts. Those who find themselves suffering from large debts might consider filing a Chapter 13 bankruptcy, and an attorney may offer valuable assistance. Our lawyers can also help with a technique called voluntary repossession. Also keep in mind that there is a statute of limitations on car repossession that creditors must abide by.


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