How Filing a Chapter 13 Bankruptcy Case in Saint Paul, Minnesota Can Help You Pay for Your Vehicle
In a chapter 13 bankruptcy case, a person makes payments towards their debts in a three to five year repayment plan. Upon successful completion of the payment plan, that person (known as the “debtor”) receives a discharge of most of their remaining debts with a few exceptions. Although Minnesotans who earn more than the median income for their household size in the State of Minnesota must file a chapter 13 bankruptcy case, rather than a chapter 7 case, any individual with regular income can file a chapter 13 case. In addition to providing the benefit of allowing a person to receive a discharge of their debts, typically after only having to pay a small portion of total debt, a chapter 13 also is a good opportunity to help a person afford their vehicle payments.
A person who files a chapter 13 bankruptcy case has the option of either making payments directly to the vehicle loan lender as they have been doing prior to filing their bankruptcy case, or making payments in their plan, in which case the trustee pays the lender from the debtor’s monthly bankruptcy payments. It is often advantageous to pay for the vehicle in their plan for a couple of reasons. For one, it is easier for the debtor to make one payment to the trustee, rather than two separate payments, one for the vehicle and one to the trustee. Another reason it may be a good idea to pay for a vehicle out of one’s chapter 13 plan payments is due to the special bankruptcy vehicle interest rate. The bankruptcy vehicle interest rate is 5.25%, which is frequently much less than the interest rate typically charged by the lender, which can save the debtor a significant amount money over time. Third, in some circumstances, the bankruptcy court may allow the debtor to “cram down” their vehicle loan and payments when the vehicle is paid in their chapter 13 plan. When a debtor crams down their vehicle loan, they essentially pay the value of the vehicle rather than the full amount of the loan. In cases where the value of the vehicle is significantly lower than the remaining balance of the loan, this can save the debtor a lot of money. To be eligible for a cram down of a vehicle loan, the loan must have been taken out to finance the vehicle, at least, 910 days (about 2 and ½ years) before they file their bankruptcy case. The beauty of the cram down is that, once the debtor successfully makes all their payments, they own the vehicle free and clear of the lender’s lien, and the remaining debt above the value of the vehicle gets discharged just the same as all other unsecured debts.
In addition to making vehicle payments easier and more affordable, a chapter 13 bankruptcy case can also help a debtor, who has past-due vehicle payments, get caught up on those payments and avoid having their vehicle repossessed. In order to work, the debtor’s chapter 13 plan must provide that the debtor’s plan payments fully pay all past-due vehicle payments. The debtor must also keep making all their current payments on the vehicle, whether the vehicle is paid inside or outside of the plan, after their chapter 13 case is filed.
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There are a lot of ways that a chapter 13 bankruptcy case can help a person make payments on their vehicle. A person considering filing for bankruptcy should first consult with an experienced bankruptcy attorney to discuss the impact a bankruptcy can have on their vehicle and to see what kind of benefits filing a bankruptcy can have for them. LifeBack Law Firm has a new office location at 370 Selby Ave Suite 224, St Paul, MN 55102. Come visit us there or online at lifebacklaw.com!
