The concept of “cramdown” in Chapter 13 Bankruptcy can help you keep your car for a lower payment if you are upside down by reducing the principal of your loan and the interest rate you are paying.
Let’s look at an example. Suppose you bought a car in 2008 for $20,000. After driving it for 50,000 miles, you have paid your loan down to $15,000. However, the car’s value (using 90% of NADA retail) has gone down to $10,000 during the same time. Additionally, your current interest rate is 13%, and payment is $325/month.
In this example, you could “cramdown” the principal on your loan to $10,000, saving $5000 of principal, AND the interest rate on your loan to 5.25% (the Till Rate). The result is you would reduce your $325 monthly payment to around $100.
The major requirement in Chapter 13 is that you have purchased your car at least 2 ½ years before you file the case. If you have questions about this concept, don’t hesitate to contact me for a free, initial consultation.