In a chapter 13, you still generally have to pay off secured loans in full, but you can restructure overdue payments or payments that have fallen in arrears. Unlike a chapter 7, in a chapter 13, you can take the amount you have fallen behind, such as on a house or car, and pay that arrearage amount over the life of a 60 month or five year plan. This enables you to potentially save the car or house. You must, however, generally make the regularly scheduled payments post petition on that loan after you have filed the case.
Dealing with Car Loans in Chapter 13 Bankruptcy
For example, if you are $6,000 behind on the car loan: you can take that $6,000 and pay $100 per month over 60 months. However, if the regular payments on that car loan were $500 per month under the original loan, then you must continue to pay that $500 per month plus the $100 per month to the Chapter 13 trustee on the back due payments, not including trustee's commissions.
Specifically with respect to car loans, cars purchased for your personal use within 910 days (about 2 ½ years) prior to the filing of the bankruptcy must be paid in full through the bankruptcy. However, you still may be able to reduce the interest rate and cram down a portion of the loan on these secured debts if the car was purchased longer than 910 days prior to the filing. Thus, if the car was purchased longer than 910 days before the filing of the bankruptcy and the value was now lower than the amount of the loan, you can cram down the amount of the loan you have to pay down to the value of the car. For example, with a car purchased 3 years before the bankruptcy, having a fair market value $10,000, and having a loan balance of $14,000, you can cram down the loan and only pay $10,000 back through the chapter 13 plan over 5 years, even though the loan amount is $14,000.
Dealing with Mortgages on a Home in Chapter 13 Bankruptcy
Similarly, on residential home loan, if you are $60,000 behind, you can take that $60,000 and pay $1,000 per month over 60 months. However, you must also make the original monthly mortgage payments on the house on the first mortgage. By contrast, if you have a second mortgage that is higher than the amount of the value of the house, you can wipe it out and do not have to make the regular monthly payments on that under secured second mortgage. For a discussion on strip off or cram down of second mortgages, click here.
Additionally, you also may be able to restructure the first mortgage completely if it is not a loan on a principal residence. There are also more creative ways then just a straight pay out in equal installments that can structured in the Chapter 13 plan of reorganization.
Get Specific Chapter 13 Advice from a Bankruptcy Attorney
Every situation is different and there may be other options available in dealing with your secured creditors. Call one of our New Jersey Chapter 13 bankruptcy attorneys for a Free Consultation or send us an email. We have offices conveniently located in Wayne, Hoboken, Hackensack & Newark, New Jersey.