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Vehicles and Chapter 13 bankruptcy

Massachusetts debtors who file for Chapter 13 bankruptcy while possessing a vehicle may be able to keep that vehicle. Filers may also be able to purchase a vehicle after they have filed or after they have been discharged.

Chapter 13 bankruptcy is a legal process that gives debtors three to five years to use their disposable income to pay off their debts. Filers are very likely to keep the vehicles they already have, but this is not the case in certain situations.

Filers who have auto payments that are extremely expensive may be prevented by the court from using the payment as part of the calculation for disposable income. Chapter 13 bankruptcy allows filers to retain money they will need for sensible and necessary expenses. A significantly large payment, such as that for a luxury vehicle, can impact the repayment schedule.

People who intend to file and have a upside down auto loan may use a loan cramdown, which reduces the loan amount to the current cash value of the vehicle. This is an option only for filers who purchased their vehicle at least 910 days before filing a petition. The remaining amount of the loan will be included in their unsecured debts.

For filers who have payments in arrears, any collections by the lender are typically stayed when bankruptcy is filed. This includes repossession. While filing for bankruptcy does not guarantee that the filers will keep their vehicles, if they pay what is overdue through the bankruptcy payment plan and remain current on future payments, they are likely to retain ownership.

A bankruptcy attorney may advise clients with substantial debts whether Chapter 13 bankruptcy is applicable to their financial situation. The attorney may demonstrate how reorganizing their debt can reduce interest payments, reduce debt and stop creditor harassment.

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