There are many advantages to filing a Chapter 13 bankruptcy if you own a car. There are ways to protect your car in Chapter 13 from your creditors. There are advantages in a Chapter 13 over a Chapter 7 for the owner of a car.
- If you are behind on your car payments you can file Chapter 13 keep your car and catch up the payments you are behind.
- If you have purchased your car in the last 910 days (do not ask where that came from but it is in the bankruptcy code) you can change your monthly payment by filing Chapter 13. You can stretch the payment out to 60 months and you can reduce the interest rate. Generally if you are in financial trouble and buy a car you can get stuck with interest rates in excess of 20%. If you file a Chapter 13 you can reduce the interest rate to 5% (current interest rate in Ohio). This can reduce your payment.
- If it has been more than 910 days since you purchased your car you maybe be able to change the payment by reducing the amount you have to pay back, reducing the interest rate and stretching the loan out. If you file Chapter 13 you may only have to pay the value of the car back instead of the balance of the loan. Combine this with reducing the interest rate and stretching the payment out and you can end up with a car payment you can afford.
- You can protect and keep your car in Chapter 13 even it is worth more than your exemption. The bankruptcy law in Ohio allows an individual to protect up the $3450 of value in one Automobile. If you were to file a Chapter 7 bankruptcy and your car is worth $8000 you stand a chance of losing that car. You would have to pay either the equity (the difference between the value and your exemption to the Trustee in this example $4550 in a very short period of time) or surrender the car to the trustee. The Trustee will then sell the car and give you back your exemption. This situation gets worse if you have more than one car as you only get to protect $3450 in one car titled in your name. In Chapter 13 you can pay that equity (that value) into the court over 60 months. Again this allows you to keep your car.
- You can surrender and give back your beater when you file Chapter 13.
These are some of the advantages Chapter 13 give you to protect your car, Chapter 13 is complex so make sure you talk to a lawyer that works with Chapter 13 debtors.