If you are struggling to pay your debts, applying for bankruptcy may be the best way out of your problem. Several advantages and disadvantages come with bankruptcy. For that reason, one needs to be sure that it is precisely what they need to do. One of the most significant advantages you get is financial relief that comes with managing your debts. However, this comes at a cost, for instance, the possibility of losing some of the assets you have acquired.
Among the things that you would not like to lose is your car. That is why California bankruptcy provides you with a chance to cram down your car loans to make it easy for you to pay them. If this interests you, get in touch with us at San Diego Bankruptcy Attorney. We have a fantastic team of experienced bankruptcy attorneys that will not only take you through the complex legal process but also explain the options you have to save some of your valuable assets.
California Bankruptcy and Its Benefits
Residents of California, just like in other states, have a legal right to apply for bankruptcy. It is a right that is offered by Federal law; to enable those people who are facing financial difficulties to enjoy some financial relief. However, one has to qualify for bankruptcy, and the decision on whether or not to award an applicant bankruptcy is usually left in the hands of the federal court. There are both short-term and long-term benefits of applying for bankruptcy in California. If you have been struggling to repay your loans, for instance, you get a long-term relief if granted bankruptcy. It means that creditors will now stop collecting the money they owe you until the court determines the matter.
Applying for bankruptcy allows the applicant to take care of most, and sometimes all of their debts. All this is dependent on their financial situation. The court will decide on how your debts will be repaid, and then you can start living with no worries about dealing with your creditors again. If the bank is about to repossess your property, you may be able to stop this by filing for insolvency. Some of the assets you may be able to secure this way include your vehicle and home. Filing for liquidation will also stop debt collectors from harassing you. It will also relieve you from all immediate debts you may be having once the court issues you with an automatic stay.
However, you need to consider the disadvantages of filing for liquidation, too, to be well prepared for what will come in the future. Not all debts can be eliminated by applying for bankruptcy. If, for instance, you haven't been paying your taxes for some time, or you owe fines to some government agencies, this must be paid back in full even after your bankruptcy application has been accepted. Again, a record of bankruptcy on your credit record might negatively affect your ability to acquire a loan in the future. It means that loan lenders will consider you a high-risk borrower and may only offer you loans at a higher interest rate.
In California, people wishing to file for bankruptcy have several bankruptcy options from which they can choose. The most popular ones being:
- Bankruptcy Chapter 7
It is the liquidation bankruptcy whereby the applicant is given the capability to discharge all his/her debts and start their life anew.
- Bankruptcy Chapter 8
It is the bankruptcy option that allows you to reorganize your debts for repayment over a more extended period.
Understanding California Bankruptcy Chapter 13
California Bankruptcy Chapter 13 is the option chosen by applicants who are not eligible for Chapter 7. Chapter 7 allows the debtor to get a quick relief out of their debts by discharging all or most of their obligations within a few months. Chapter 13, on the other hand, allows the debtor to organize their debts and come up with a plan on how those debts can be repaid over a more extended period. If the court grants you bankruptcy Chapter 13, you are assigned trustees, together with whom you come up with a repayment plan for all your debts. The repayment period can last for between three to five years, depending on how much money you have in debts.
You, however, have to qualify for California Bankruptcy Chapter 13, which means that you need to maintain a stable source of income. The income is what will be used to pay your debts. With a regular plan at hand, and a debt repayment plan, you should be able to make monthly repayments to the trustees assigned to you, who will, in turn, distribute the money to your creditors. It is essential to follow through with the plan and make your payments on time to ensure that the end of the program discharges all your debts.
For a person that is overwhelmed with debts, bankruptcy Chapter 13 may sound like an impossible solution to freedom from debts. However, several advantages come with it. The debtor is, for instance, able to hold onto some of his/her secured asset that might have been liquidated had they chosen bankruptcy Chapter 7. You retain some of those essential assets you would not want to lose, for instance, your vehicles or home.
Another advantage is the fact that the court allows you to pay what you can afford, bit by bit, until all your debts are repaid. The court may discharge some of those that seem impossible to repay, based on your income and how much money you have accrued in debts.
Auto Loan Cram Downs in California Chapter 13 Bankruptcy
Among the advantages that you enjoy in filing for Insolvency Chapter 13 in California is the ability to cram down your debts in an effort to save yourself from losing a valuable asset. Cram Downs in California Chapter 13 Bankruptcy enables the debtor to reduce the main balance of their debts to the worth of an asset that has secured that debt. Debtors are encouraged to take advantage of these cram downs if they want to save their investments and essential assets such as cars and real estate properties.
After filing for California bankruptcy chapter 13, the debtor is allowed by the court to cram down some of their secured debts. Note that secured debt is one in which the lender has some form of security interest on the asset and can quickly retrieve it if the debtor is unable to repay the loan. In this case, it is possible to cram down your auto loan, mortgage, or any other loan obtained to acquire personal property, including household furnishings. However, there are exceptions; for instance, you are not allowed to cram down a home loan on your place of residence.
Auto loan cram downs are very common with people who have qualified for chapter 13 bankruptcy in California. If you would like to take advantage of this provision, you need guidance on how cram downs work and how best you can save your car or other vehicles from repossession. If, for instance, your car worth is less than the amount of car loan you owe, you should be able to cram down the difference to make it easy to pay back the remaining amount. What happens is that the difference will be included in the list of your other debts that are unsecured. By the end of your debt repayment plan, you will have cleared off the debt and will be able to keep the car with no debt issue.
Cram downs present several advantages to the debtor. You will, for instance, be the absolute owner of the asset by the end of your bankruptcy plan. It also allows the debtor to reduce the interest rate on their loans and stretch out the repayment for a much more extended period. The more your debt repayment plan stretches, the less your monthly obligations will be. It allows you to cater to your other financial requirements while keeping tabs with your debts.
Once your loan has been crammed down, the interest rate you will pay your secured creditors will be determined by the court. The amount is usually much lower than the current rate saving you a considerable amount of money by the end of it all. Again, since the repayment period is often stretched out to a maximum of five years, you may find yourself paying less in a month than you would have been doing if you were settling your debts outside bankruptcy.
Advantages of Auto Loan Cramdowns
In a nutshell, a cram down is a chapter 13 bankruptcy provision that allows you to own a car for much less by cramming your auto loan down to the actual market value for that vehicle at the time you are applying for bankruptcy. Generally, certain assets such as vehicles depreciate in value as soon as they get off the market. It means that in a few months or a year, the cost of your car will be much lower than its value when it was brand new. If you have had your vehicle for a while, you may be able to save more if you cram down your auto loan balance to the current market value of that vehicle. The advantages here include:
- You end up paying so much less for your car than indicated in your initial contract
- You can lower the amount of money you contribute monthly for your car loan repayment
- You will not worry much about any late monthly repayments. After successfully applying for bankruptcy chapter 13, your trustees will take over your monthly repayments. It means that your creditors will not oblige you to catch up on any late or missed repayments
- Depending on the current value of your vehicle, you may even enjoy reduced interest rates on your car loan
- Your car will be safe from repossession as long as you follow through with the payment plan devised together with your bankruptcy trustees
Are There Restrictions to Auto Loan Cramdowns?
There are restrictions to bankruptcy cramdowns to ensure that only genuine cases of people who are overwhelmed by debts are getting this advantage. Again, Congress had to make tough conditions to prevent debtors from cramming down auto loans that have been recently acquired. There are several restrictions, each based on the kind of debt you want to cram down. The most popular one with auto loans include:
The 910 Days Rule
This rule states that anyone that would like to cram down their auto loan must have a minimum of 910 days since the purchase of their vehicles. Nine hundred ten days is about 2.5 years, before which you may not be allowed by the bankruptcy court to cram down your car loan. The restriction was provided to make it hard for people who have recently acquired vehicles from cramming down their auto loans as soon as the values of those vehicles start depreciating.
If your car is less than 910 days old and you would wish to apply for bankruptcy, it is better to discuss your options with an experienced bankruptcy attorney. He/she will be in a better position to advise you on whether to proceed with your application or to wait until the 910 days are over so that you can take advantage of the provision. It might be useful to wait a little longer, especially if the 910 days are coming soon.
What If I Don’t Qualify for Cram Down?
As mentioned above, the worry for many people when applying for bankruptcy is whether or not they will be able to keep some of their essential assets. Losing a vehicle is tough, especially if you still need it to run family or business errands or go to work. The ability to cram down an auto loan comes as a blessing for many. However, not all people can qualify for auto loans cram-down. If your car is still new or you are disqualified for another reason, note that there will be another way to reduce your auto loan repayments once you qualify for bankruptcy Chapter 13.
One of the advantages of filing for chapter 13 bankruptcy mentioned above is the debtor’s ability to spread out their debts for a period of up to 60 months. Even without being able to cram down your auto loan, you can still spread out your auto loan for up to five years, which leaves you with less money to pay every month. Generally, you enjoy a lot of flexibility with chapter 13 bankruptcy in reducing your monthly debt repayments
Cram Down Alternatives Provided by California Bankruptcy Chapter 7
Some people will easily qualify for California bankruptcy Chapter 7. These are people who want to discharge off their debts in a rush and have enough assets to support it. In that case, you may have to seek an alternative for a cram down if you want to reduce the amount of debt you have on your car and other essential assets. These alternatives include:
- Redemption: People who have qualified for Chapter 7 bankruptcy can be allowed to repay their debts in a lump sum. To save on your car loan repayment, your lender may agree to reduce your auto loan balance to the current value of vehicle to enable you to clear your debt at once. You will have to get the current market value for the car beforehand, which your creditor may challenge. However, the bankruptcy court may agree to the redemption if the valuation was done correctly. The only challenge with this is that the debtor will have to raise enough money to pay back the auto loan. If you have other debts, you may not be able to redeem your car.
- Reaffirming your Auto Loan: This is done in the form of an agreement between the creditor and the debtor, allowing the debtor to repay their auto loan as if they have not filed for bankruptcy. Some creditors will make the terms of repayment better to entice the debtor to sign the agreement. However, the agreement may not be a good idea for a person who wants to enjoy freedom from debts. Again, you may suffer consequences if you do not honor your end of the bargain, maybe due to missed or late repayments.
Find a San Diego Bankruptcy Attorney Near Me
Filing for insolvency in California is not as easy as it may seem. You need proper guidance from an experienced bankruptcy attorney to do it right. If you want to save some of your valuable assets such as your car, you may be able to cram down your auto loan for manageable repayments. At San Diego Bankruptcy Attorney, we listen to the needs of our clients and advise them accordingly to ensure that their interests are served in the end. If you are in San Diego, CA, call us at 619-488-6168 and let us help you resolve your financial issues.