Filing for Chapter 13 is one option for a Texas debtor who wants to avoid having their car repossessed. However, an individual would need to remain current on their loan during the proceeding. Furthermore, the past due balance would need to be included as part of the bankruptcy repayment plan. If the car is worth less than what a debtor owes on it, they may want to request a cramdown.
Such a request can be granted if a debtor has an auto loan that has been in existence for at least 30 months. This turns any portion of the loan that exceeds the vehicle's current value into an unsecured debt. In a Chapter 13 proceeding, secured debts typically take priority over unsecured debts. Individuals also have the option to return the vehicle to the lender as part of a bankruptcy proceeding.
This may be ideal for someone who owns a vehicle that's worth significantly less than what they owe on it. It might also be a worthwhile option for an individual who can't afford to stay current on their car loans. In some cases, a debtor can purchase a different vehicle during the repayment period. The individual would be required to show that they need the car and could pay for it without significantly impacting their repayment plan.
Individuals who file for Chapter 13 bankruptcy might be granted an automatic stay of creditor collection activities. This could include a ban on repossessing a vehicle or filing a lawsuit to collect a past-due loan balance. In the meantime, a debtor may be allowed to sell or return a vehicle to satisfy that balance. An attorney could help a debtor learn more about the benefits of bankruptcy.