910 Cars in Chapter 13
You cannot cramdown a car loan if you purchased a car within 910 days of filing bankruptcy.
The infamous hanging paragraph in §1325(a) prohibits a cramdown but you can still take advantage of the Till interest adjustment. The Supreme Court’s decision in Till v. SCS Credit Corp, 541 U.S. 465 (2004) establishes the interest rate a debtor must pay on his/her car loan in a chapter 13 bankruptcy. A debtor should start with a prime plus interest rate of 4.25% based on today’s prime interest rate of “3.25%” plus 1.00% to account for the Till adjustment of 1.0% to 3.0%.
Even if you’re unable to cramdown the car loan principal because the car was purchased within 910 days, you can still cramdown the interest and save thousands of dollars.
In a recent case, a client’s car loan before chapter 13 bankruptcy was $572 per month at 11.45% interest with an estimated total of $34,297. Contrast that with a lower monthly payment of $482 at 4.25% interest and estimated total of $28,930. The client saved over $5,000 dollars on her car loan simply by taking advantage of the Till interest rate of 4.25%
Consumers can save thousands of dollars on their car loans thanks to the Supreme Court’s Till decision.