Chopping Your Car Loan & Interest Rate in Chapter 13 Bankruptcy

imagesChapter 13 bankruptcy allows you to reduce your principal balance on your car loan and reduce your interest rate to 4.25%!

As a bankruptcy attorney in Philadelphia, I have seen clients with car loans double the actual value of their vehicles and interest rates up to 21%.

A cram down in a Chapter 13 reduces the car loan balance to the vehicles fair market value. The new amount is paid in the chapter 13 plan over 36-60 months.

For example, Dwayne’s car is worth $15,000 but the balance on his car loan is $25,000. His payment is $774 per month at 21% interest. In Chapter 13, Dwayne can cram down the car loan balance to $15,000 and reduce the interest rate to 4.25%. Dwayne’s new car loan payment is: $340 per month.

The 910-Day Rule

There is 1 rule for the cram down process: 910-Day Rule. You must have purchased the car at least 910 days (around 2 ½ years) prior to the bankruptcy.


Chapter 13 allows you to cram down your car loan, cram down your interest rate, and spread the remaining balance over 36-60 months. Dwayne was originally paying $774 per month at 21% interest over 48 months. The trifecta allows Dwayne to pay $340 per month at 4.25% interest over 60 months. This is thousands of dollars in savings.

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