Chapter 13 Bankruptcy and the 910 Day Rule on Car Loans

Understanding how the 910-day rule applies to car loans in Chapter 13 bankruptcy could save you a significant amount of money.

By , Attorney · University of the Pacific McGeorge School of Law

The bankruptcy cramdown is a helpful Chapter 13 feature. The cramdown allows you to reduce the amount you owe on certain debts guaranteed with collateral, such a car, rental property, or jewelry.

In this article, you'll learn more about cars and the cramdown rule, including how bankruptcy law limits a cramdown to a vehicle purchased more than 910 days before a bankruptcy filing.

Learn about essential differences between Chapter 7 and Chapter 13.

How Do Car Loan Cramdowns Work?

When you owe more on a car loan than the car is worth, it's good to take a look at your bankruptcy options. You can always let the car go back to the lender and discharge any amount you owe at the end of your repayment plan. But if you need the vehicle, you'll want to consider other options.

If you qualify for a cramdown, you can reduce the balance on your car loan to the value of the car. For instance, if you owe $10,000 on a car worth $8,000, a cramdown will let you pay it off for $8,000.

For a more detailed explanation of how cramdowns work for car loans, see Car Loan Cramdowns.

The 910-Day Rule Qualification

One limitation to cramming down your car loan is that you must acquire the car loan more than 910 days before you filed for bankruptcy. The law intends to prohibit cramdowns on newly purchased cars. If 910 days haven't passed, you won't be able to cram down the loan.

Paying Off the Loan and Your Chapter 13 Repayment Plan

Another limitation that might prevent you from taking advantage of the cramdown rule is this: You must pay the cramdown amount in full through your repayment plan. The court won't confirm (approve) a repayment plan if a filer doesn't have sufficient income to do so.

Depending on your debt, you might have other obligations that must be paid in full, as well. For instance:

You don't have to pay much on most other debt if you lack adequate income. But, it isn't unusual for these requirements to stand in the way of a filer's use of Chapter 13.

910-Day Rule Car Debt in Your Repayment Plan

If you qualify for a vehicle cramdown, you'll likely still pay something toward the amount that exceeds the value of the car. For instance, let's again assume that your car's value is $8,000 on a $10,000 loan.

You'll pay the $8,000 in full through the plan. The remaining $2,000 loan balance gets reclassified from secured debt to general nonpriority unsecured debt. General nonpriority unsecured debt goes into one pot. Those creditors receive payment only after all other higher-ranking creditors get paid. They'll receive a pro rata share of whatever amount remains if anything.

Learn about debt payment in a Chapter 13 repayment plan.

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