cramming down the car loan

[downsized]

This is what our atty has hopes of for us. Of course, the new loan will certainly have a high interest rate, right? I guess I'm having trouble understanding why we don't just reaffirm the current loan. Higher balance and low interest vs. lower balance and high interest. If we're only upside down by a few thousand and we intend to keep the car for the long haul, does it really make sense to cram down the loan? Won't I be raked over the coals with that much interest anyway?

[StartingOver08]

You can only cram down a loan that is more than 910 days old.

So I am a little confused with your post - is this a vehicle you just got or have you had it for 910 days or more?

[downsized]

We haven't had it 910. The atty asked and we told him it's an '07 overstock that we purchased after the '08's came out. He didn't think it would be a problem to cram down the loan. He did say it has to be approved, though. I'm just trying to figure out if it's even worth the trouble.

[HHM]

The 910 rule applies to chapter 13, not chapter 7. However, in a chapter 7 you can't "technically" cram down the existing lien and continue to make payments on the car at that new amount. What this lawyer is proposing is a 722 redemption; whereby you (for lack of a better term ) cram down the car loan to its current market value and get a loan to pay the current vehicle lender the amount of their "secured" claim.

If you are behind on payments to your car lender, this may be the only way for you to keep it (in chapter 7).

[hamburgervol]

per Justin Harelik of Bankrate

Recently, I had a very enlightening conversation with in-house counsel at a large car loan redemption company. This company works out deals with you and a new lender to refinance your car post-bankruptcy. I was told that the 910-day rule is not regularly enforced by the original car lender.

[NoMoreRed]

Here's how cramming down may help and how ours worked out. We had an SUV that we owed just over 14K on and it was crammed down to the fair market value of just under $3,900. Our payment on the original loan was $428/month and we would have ended up paying just over 16K with interest on the original loan when it was paid off. After the cram down (through 722 redemption) the interest is high, but our payments are now $191/month and we will end up paying just over 6K when it it fully paid off. That will save us 10K overall on the vehicle. There is no prepayment penalty on our new loan, the payments are more affordable, we will pay less overall and we get to keep our vehicle which is in excellent condition and has low miles. In our case it was a no brainer. Just look at the math and see if it will be financially beneficial for you overall.

As far as reaffirming vs. the cram down and new loan....with the new loan it will help you rebuild credit with no potential issues of reporting your ontime payment to the credit bureaus. With the reaffirmation the resumed and accurate reporting is really dependent on the lender. Some have had issues with some lenders and not with others.

[AfraidOfBK]

Red,
I think I am in a very similar situation to yours....at what point in filing did you find out (or negotiate) the new terms of the loan? Did you have to "qualify" by certain requirements? We are current, and we want to do this with two cars....do you htink we have a chance? THe loan is less than 910 days old, but we are filing ch 7. I have Bank of the West and Wachovia Dealer Services....anyone hear about how theya re with negotiating?

[downsized]

AfraidOfBk.....the way I understand it is that you get a new loan from a new lender for the new value placed on the car. That's how it was explained to me. Lawyer said once we get the ok to redeem the car, I'm to go apply for a loan. It's not a negotiated price with the current lender. At least not in my case.

[reeltrouble]

wow.. GREAT thread. We are trying to negotiate with our auto lender as well, to try and reduce the balance to what the FMV is, but havent even been able to get anyone on the phone yet. We aren't alone, good news to hear! Will be very interested to see what else happens. Ours is with Volkswagen Credit, any experiences? How do you find these "redemption" companies to do this?

[HHM]

wow.. GREAT thread. We are trying to negotiate with our auto lender as well, to try and reduce the balance to what the FMV is, but havent even been able to get anyone on the phone yet. We aren't alone, good news to hear! Will be very interested to see what else happens. Ours is with Volkswagen Credit, any experiences? How do you find these "redemption" companies to do this?

Keep in mind, we are talking about bankruptcy; in bankruptcy, the cram down (the reduction to FMV) is forced, not negotiated. I have yet to hear of anyone getting a meaningful result from a private negotiation with car lenders.

[brokeinfl]

Is FMV typically KBB value?

[StartingOver08]

No. FMV is lower than KBB.

[downsized]

No. FMV is lower than KBB.

Thanks for posting this! I was thinking it would be at KBB's value.

[StartingOver08]

Right now the best way to determine actual market value is to have an independant appraiser look at the vehicle and give you a written estimate. Both KBB and NADA have been high, that's why the Trustee's use those values!

[downsized]

So do I have some play here then? Does the trustee come back and say he agrees to let us redeem the car for $X and we have to use that amount or can I take an appraisal in with my intention and request that amount?