Yes. Chapter 13 lets you keep your car while catching up on payments and potentially reducing the loan balance.
Chapter 13 is a reorganization plan -- not a liquidation. Unlike Chapter 7, which may require surrendering non-exempt property, Chapter 13 lets you keep all your property as long as you make the required plan payments.
When you file Chapter 13, the automatic stay immediately stops any pending repossession. If your car has already been repossessed but not yet sold, you may be able to recover it through the bankruptcy.
If you have fallen behind on car payments, Chapter 13 allows you to cure the arrears (catch up on missed payments) over the 3-5 year plan period while continuing to make regular monthly payments going forward.
If your car loan was taken out more than 910 days (approximately 2.5 years) before filing, you can "cram down" the loan to the car's current fair market value under Section 506.
Loan balance: $15,000
Car's current value: $8,000
Result: You pay $8,000 as a secured claim through the plan (at a court-approved interest rate, typically prime + 1-3%). The remaining $7,000 becomes unsecured debt and may be partially or fully discharged.
Through cramdown, the court can also set a new interest rate on the secured portion of the car loan. Courts typically use the "prime plus" method from Till v. SCS Credit Corp., 541 U.S. 465 (2004), which usually results in a lower rate than the original loan.
Under Section 1325(a)(9) -- known as the "hanging paragraph" -- if you purchased your car within 910 days of filing, you cannot cram down the loan. You must pay the full loan balance through the plan. This rule was added by BAPCPA in 2005 to protect recent car lenders.
If you fall behind on plan payments (which include your car payment), the trustee or the car lender may file a motion to dismiss or seek relief from the automatic stay. If the stay is lifted, the lender can repossess the vehicle. This is one of the common reasons Chapter 13 cases fail.
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Keep the car? | If current on payments and equity is exempt | Yes, through the plan |
| Cure missed payments? | No | Yes, over 3-5 years |
| Cramdown available? | No (redemption option exists but requires lump sum) | Yes, if loan is 910+ days old |
| Reduce interest rate? | No | Yes, through cramdown |
Learn more about Chapter 13 repayment plans.
Chapter 13 OverviewThis page provides general information based on publicly available federal court records. It does not constitute legal advice. Consult a licensed attorney for advice on your specific situation.
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