Rainsville, AL asked in Bankruptcy for Alabama

Q: I live in Alabama and I was wondering if you can file on a car only and not other things.

We want to keep the house and other things but not the car. We found out that the car is only worth right at 8k but we still owe over 15k. What should we do? We are able to make the house payments but not the car.

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2 Lawyer Answers
Kevin M Ryan
Kevin M Ryan pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›
  • Bankruptcy Lawyer
  • Loxley, AL
  • Licensed in Alabama

A: Chapter 13 may ( stress, "may") enable you to "cram down" the vehicle loan, which is in simple terms a process whereby you pay the creditor only the current fair market value of the vehicle, with interest which is usually Prime Rate plus 1 or 2 points, over a time period of between 36 up to 60 months. At the end of a cram down Ch 13 Plan you get the title to the vehicle. The loan must be more than 2.5 years ( or 910 days) old to be eligible for cramdown. If you cannot cram down the vehicle you can still re-amortize the loan over a period of up to 60 months and lower the interest rate the same as a cram down.

Mark A. Baker
Mark A. Baker
  • Tallahassee, FL
  • Licensed in Alabama

A: The answer to your question requires analysis of a number of variables that you haven't addressed, to determine whether you are eligible for chapter 7 relief (a so-called "fresh start," with discharge of all eligible debts) or would otherwise be required to file a chapter 13 case (which allows you to cure your contractual defaults and repay your creditors over 3-5 years).

Regardless of the type bankruptcy for which you are eligible, you must schedule ALL of your debts, assets and income, together with other financial information, and you cannot pick and choose. Under both chapter 7 and chapter 13, there are provisions to allow you to pay for and retain a car, real estate and other assets, but the provisions are specific to each of the chapters for which you may be eligible.

To understand your options better, I recommend you discuss your eligibility with a seasoned bankruptcy attorney in your area. Best of luck.

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