If you have negative equity in your vehicle, it may be possible to eliminate it in a Chapter 13 case. After filing for bankruptcy in a Maryland court, you can work with the trustee assigned to your case to negotiate its actual cash value. Any portion of your balance that exceeds the actual cash value may be converted to an unsecured debt.
How to determine if you’re eligible for a cramdown
A cramdown is only available if you have negative equity in the vehicle and if you file for Chapter 13 bankruptcy. Furthermore, you must have owned the car for at least 910 days prior to filing for protection from creditors. This rule is in place to ensure that you don’t buy a car and immediately file for bankruptcy in an effort to reduce the loan balance. Finally, you must include past-due and future car payments as part of your overall repayment plan.
What if you don’t qualify for a cramdown?
If you don’t qualify for a cramdown, you may be able to surrender the vehicle to your lender. It may also be possible to find another way to pay down the vehicle’s negative equity. You have the right to sell the asset and use the proceeds to pay off the loan balance. In most cases, you won’t have a problem obtaining a new car loan after your case is discharged.
Generally speaking, creditors cannot seize your home, car or other secured assets after you file for Chapter 13 bankruptcy. This may make it easier to get caught up on past-due balances or provide you with leverage to renegotiate the terms of a car or home loan. An attorney may provide more insight into the process of filing for bankruptcy.