How Chapter 13 Works When You’re Behind on Car Payments

Restructuring an Automobile Loan in Bankruptcy

When you’re facing financial challenges and struggling to pay your bills, that often means you’re behind in making your car payments. But having reliable transportation is important when you’re trying to turn things around—you need to get to and from a job.

A Chapter 13 bankruptcy filing can help ease your financial burdens and allow you to keep your car. Here’s how it works.

Reorganization of Debt under Chapter 13

Immediately upon filing your Chapter 13 petition, an automatic stay goes into effect. The stay prevents creditors from calling, writing, or otherwise attempting to collect the debt, other than through the bankruptcy proceeding. Once bankruptcy is filed, your first step is to put together a plan for paying off your creditors, including your automobile lender, over a three-to-five-year period.

When putting your plan together, it’s important to remember a couple things:

• The monthly amount you pay for your vehicle must be reasonable—When the court evaluates your proposed plan, it will necessarily give priority to secured creditors (those to whom some collateral has been pledged). A vehicle loan is typically a secured debt. Unsecured creditors are paid only after secured creditors are paid. If the payment on your automobile loan is disproportionately large, the court may consider the vehicle a luxury item and not allow payment of the entire amount before payments to unsecured creditors.
• Your creditors and the court must approve your plan—Your proposed plan should reflect what you can reasonably pay. Your suggested payments should be neither underestimated nor overstated. The bankruptcy court wants you to succeed, so put together a realistic plan.

Contact an Experienced Rockwall, Texas, Bankruptcy Attorney

At the Law Offices of Carrie Weir, all potential clients are entitled to a free initial consultation. I am currently communicating with clients by phone, text message, and videoconference. To arrange an appointment, contact my office online or call 972-772-3083. I handle personal bankruptcy filings throughout Rockwall County, Texas, including the cities of Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, and Rowlett.