I’m often asked when a car can be crammed down in bankruptcy.
First of all, what is a car cram down?
When a debtor owes more on their car than it is worth, a cram down will “cram down” the amount that the debtor owes on the car, to be equivalent with what the car is actually worth. This simple technique can save the debtor thousands of dollars in what they owe on their car, not to mention the interest on that amount.
There are some rules about how to do this though, as outlined below:
- The loan on the car (not the car) must 910 days old, or more (roughly 2.5 years old)
- The debtor must be filing a Chapter 13 bankruptcy
- The car loan must be place in the Chapter 13 plan to be crammed down
The above will help you determine if your debtor’s car loan qualifies for a cram down. If their situation meets all of the above criteria, all you have to do in the petition is remove any arrearages that might have been reported for the car loan in the petition, and change the claim amount for the loan from the amount that the debtor currently owes, to the amount that the car is actually worth.
How do you determine how much the car is worth?
There are several excellent online sources for determining the value of a car. Two of the most widely used are:
Kelley Blue Book – www.KBB.com
N.A.D.A. – www.NADAGuides.com
Simply go to either website, and you’ll find that you can enter any later model (1990 or newer) vehicle, and find the value of it.
Remember though, that a cram down in a Chapter 13 Plan is a proposal, and isn’t a guarantee, so remember to print your findings to a PDF file to give to your attorney with the petition your prepare for him/her, as it may be needed as evidence of value in the 341 meeting, or if there is a proof of claim filed by the creditor.
Also, when cramming down a vehicle, don’t forget to also cram down the interest rate. I often see debtors with a 12.95% or higher interest rate on their car loan. You will likely be able to change this in the petition to an interest rate that is the current going rate for a car loan for someone with good credit. For example, in the jurisdiction that I file a great many of the petitions I prepare in, we always propose cramming down the interest rate of the car loan to 5%, and have not had any objections.
TIP: Even if the debtor’s car loan doesn’t qualify for a cram down (e.g., the loan on the car is newer than 910 days), we have still been successful in cramming down the interest rate of the car loan, as long as the debtor is filing a Chatper 13, and the car has been placed inside the Chapter 13 Plan.
=====================================================
Update on Upcoming VBA Marketing and Chapter 13 Seminars in Atlanta, GA
=====================================================
We still have some seats available at the upcoming 713 Training Seminar on April 23-24, so don’t forget to register. You can attend either day, or both.
April 23 – Day 1: VBA Marketing
http://www.713training.com/shop/cart.php?m=product_detail&p=122
April 24 – Day 2: Chapter 13 Training (including Mortgage Cram Downs / Strip Downs)
http://www.713training.com/shop/cart.php?m=product_detail&relate=1&p=120
We hope to see you there!
DISCLAIMER: We at 713 Training are not attorneys; any information provided by 713 Training should not be considered legal advice. The information in this article, and any other materials provided by 713 Training, whether delivered verbally, written or via any other means, including electronic/digital delivery and storage, is for training purposes only, and is intended for individuals who work under the direction of a licensed attorney.
