Car payment: inside v. outside the plan

[Pugbug]

Question: I have read somewhere on this forum that it's a good idea (under certain circumstances, I assume) to keep your car payment outside the plan. Why is that?

We are scheduled to file next week. Although I have not seen the plan details yet, I do know the attorney has my husband's truck payment inside the plan.

I'm anxious to get filed. We have waited since the first of the year for my annual bonus to fall off our income history. Husband lost his management position just before Christmas last year, which was the final straw. Thank goodness I found this forum! You've helped me stay sane and relatively unafraid through all of this.

--Pugbug

[rrockinggramma]

if the loan is an older loan, then inside the plan is fine. When it is inside the plan the trustee makes the payment and it is ususally paid off in the beginning of the plan. If the loan is older than 910 days then it could be crammed down to FMV. In the plan, the claim is for principal only. The lender will get the interest rate on the loan that the trustee pays them (trustee decides the amount)

Now outside the plan if the loan is newer because you will have to pay 100 percent anyway and then you have control over the payments.

Outside the plan, the lender 'could' report your payments as ontime. But generally they will report the loan as "included in wage earner plan"

Pretty much I think it is individual preference. Some like to control the payments, some don't. I put my vehicle in the plan and never regretted it. It was paid off within 3 months of confirmation and the lender sent me the title lein release right away. Mine does report on Equifax as "paid and closed" (positive tradeline) and on Experian it reports as a derogatory account and included in wage earner plan. TU deleted the account all together.

[BigJohn]

We have not filed yet. Our lawyer says the car and truck are to be in the plan. They both are new vehicles. Instead of paying off in 6 years, we hopefully will pay them off in 3 years at a lower interest rate. Yes the Trustee gets his cut also.

[liz417]

Hi Pugbug,

I was told the same thing as rockinggramma. Since our cars are newer, or oldest loan being a year old, we would pay outside the plan.
Ask your attorney, as each case is different and he would have a better idea with all your bk details.

Good Luck!

[oldrocker]

We will be making my truck payment outside the plan. I'm about half way through a 0% 6 year loan on it. I pulled one of my free credit reports the other day, 3 weeks after filing Ford shows it as "included in bankruptcy, never late". We'll see over time if they report anything else on it.

[helpmestartover]

I am planning to file shortly. My car loan is recent, i am unable to do the cram down, etc. I would guess my car loan would be kept out of the plan.
Could someone shed light on if it is included in my plan but does not meet the 910 rule through my reading back through posts I see some people got their interest rate reduced? Since my credit was up the creek from my previous BK and now I am again a credit nightmare, my interest rate on my car loan is 14%. I can afford the payments but am drowning in the unsecured that i am paying minimums and getting nowhere.

[rrockinggramma]

In that case, put the car in the plan. The lender can only file on principal balance and the trustee will pay them an interest rate that he decides. Mine paid 6 percent but others have posted that theirs paid 10 percent. But a lot less than 14 percent!!!! So I would put your car in the plan.

[kwnancy]

We paid our car payment out of the plan. Only had 13 more payments. After the car was paid off, our trustee payment did NOT change -- so an extra $450 per month for the remaining 23 months. (Filed old law)

[biotechsolution]

if you car payment is in the plan the drawback is whatever the trustee's fee is
,usually 4-7%, the trustee is making money on your car payment.

So you are paying more for your car payment since you are adding the trustee's fee to your payment essentially.

If you have a good interest rate and are current you don't want to include
the payment in the plan.

[bcvw]

Would there be a benefit to include the car in the plan on the basis that it is secured and therefore is paid first before unsecured? (but after preferentials; lawyer and trustee)

I can see the benefit if I am paying out $1500/month in my plan and most of that goes to pay down the note on the car and I then own it in 16 months vs the 5 years remaining if I were to pay it direct. It at that point becomes an asset that could be sold or traded.

Or do I have this all worng?

[bcvw]

Any comments on my question?

[car67]

I dont think your car loan woild accelerate faster in the plan to a closing final payment point any faster then being outside the plan

[rrockinggramma]

Your car would be paid off before any unsecured creditors. My car was paid off in bunches. All of my money went to the car. Lawyer first, then the IRS, (and the car) and then the car. Once it was paid off, I called the lender and they released the lien to me even though I was still in the chapter 13. So I have free clear title to my car in my possession, even though still in chapter 13. It is a good feeling.

And yes the trustee will give himself his percentage when he makes the payment but a small price to pay for only paying say 6 to 10 percent interest on the vehicle instead of the high rate the OP was being charged.

[bcvw]

Thanks, that's exactly what I thought. I'd like to have clear title to car sooner than later, sort of a victory in the grand scheme and a definite feel-good. I'll discuss this with my attorney. I presently have a 6.75% rate so that may affect my decision.

[HHM]

Car payments inside or outside the plan is a wash. Frankly, the only person who benefits from payment inside the plan is the trustee. The net result to the debtor is the same. Your disposable income is your disposable income regardless if you pay your car in our outside the plan.

Unsecured creditors lose because part of their pie is eaten up by the trustee fee.
Inside is a wash for the car lender. It really does not matter.
There is not benefit, but also no harm to the debtor either way.

My thought is, since you don't get a benefit, why do it. Thus, I always advise to pay secured debts OUTSIDE the plan.