Did you know that if you have owned a car for more than 910 days or, if you have refinanced the car since the original purchase, you can eliminate some of the debt you owe on the vehicle? Did you know that you can stop paying high interest rates on your car by filing a Chapter 13 bankruptcy case?
The 910 Day Rule
Prior to October of 2005, filing a Chapter 13 bankruptcy case allowed debtors to split any secured car claim into a secured portion (based upon the value of the car at the time of filing) and an unsecured portion (the amount in excess of the value). With the passage of the new bankruptcy law in 2005, Congress created a rule that prohibits debtors from splitting a claim owed on a car into a secured and unsecured portion if the car has been owned by the debtor for less than 910 days and the debt being paid was used to purchase the vehicle. This is commonly referred to as the “910 Day Rule.” You will also hear bankruptcy lawyers talk about a “910 Vehicle.”
The “910 Rule” Changed how Debtors could use 11 U.S.C. Section 502
Historically, a debt on personal property was secured in bankruptcy only to the extent of the value of the collateral that secured the debt. In other words, the secured debt was limited to the value of the car. If the debt was $20,000 but the car was worth only $10,000, the debtor could treat $10,000 as a secured claim and $10,000 as an unsecured claim.
Debtors can still take advantage of 11 U.S.C. Section 502 on older cars or ones that have been refinanced.
If you have owned a car for more than 910 days when your case is filed, you can still divide the creditor’s claim into a secured and unsecured portion based upon the value of the vehicle. Upon the filing of your Chapter 13 case, your bankruptcy attorney will also file a motion to value a car owned for more than 910 days. Once the bankruptcy court determines the value of the vehicle, only the secured portion (the vehicle’s value) will have to be repaid in full, with interest. The balance of the debt will be treated like all other unsecured claims in your plan.
There is still relief available even if you haven’t owned your car for more than 910 days.
If you financed the purchase of your car less than 910 days prior to the date of filing your case, you cannot split the claim but you can lower the interest rate you are paying on the debt. Currently, the bankruptcy courts in the Northern District of Alabama are allowing interest rates as low as 4.25 percent to be paid on secured car loans. The reduction in interest can save chapter 13 debtors a tremendous amount of money, especially if the interest rate in their contract is very high.
Getting Help
If you are struggling with your car payments, help is available. Call an experienced bankruptcy lawyer to see how your payments can be reduced. The call and the initial consultation are free. An experienced bankruptcy attorney can also help you save your car if you have fallen behind on your payments. Make the call to see what help is available to you and start on your way to a better life.
