When filing for personal bankruptcy, one of the first decisions is which chapter to file under. This decision can partially hinge on what possessions you want to retain, and how each chapter treats those possessions. An important possession for many is their vehicle, and each Chapter has very different consequences on retaining a vehicle.
Chapter 13 is one option which allows for regular payments over a three or five-year plan, and allows the debtor to retain possessions, including a vehicle, during that time. U.S.C. §1325(b)(4)(A). However, the amount you pay on the debt of the vehicle could be different based on when you got the vehicle, and what type of financing was used.
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, an amendment to the Bankruptcy Code. Timothy D. Moratzka, The Hanging Paragraph and Cramdown 11 U.S.C. 1325(a) and 506 after BAPCPA, American Bankruptcy Institute, May, 2006, (www.abi.org/abi-journal/the-hanging-paragraph-and-cramdown-11-usc-1325a-and-506-after-bapcpa). One change to the Code was a portion for Chapter 13 filings, commonly referred to as the Hanging Paragraph. Id. The requirements described in the Hanging Paragraph are about when a vehicle was purchased and the type of loan used for that purchase. If those requirements are met, the entire value of the vehicle’s debt must be paid during the plan – regardless of the value of the vehicle or other factors. U.S.C. §1325(a)(9). If that amount is not able to be paid during the plan, the potential plan will not be approved by the court, and Chapter 13 may no longer be an option. U.S.C. §1325(a)(5).
The decision of which chapter to file under in personal bankruptcy can have major implications about what possessions you are able to keep, and if discharge of debts is even possible at the end of the process.
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