Can Chapter 13 Lower Your Car's Interest Rate?

Yes, Chapter 13 bankruptcy can lower your car loan interest rate and, in some cases, even reduce the total amount you owe.

For many people, this is one of the biggest advantages of filing Chapter 13.

Instead of staying locked into a high-interest car loan, Chapter 13 may allow you to:

• Reduce your interest rate to a more reasonable level
• Lower your monthly payment
• Potentially reduce the balance on your loan (through something called a “cramdown”)

Let’s break down how it works.

How Chapter 13 Can Lower Your Car Loan Interest Rate

When you file Chapter 13, your debts are reorganized into a structured repayment plan.

As part of that plan, your car loan may be modified.

In many cases:

• Your interest rate is reduced to a court-approved rate
• Your payments are spread out over 3 to 5 years
• Your loan becomes part of your bankruptcy plan instead of a separate obligation

This can make your car payment significantly more affordable.

How Much Can You Save?

Let’s look at a simple example.

Say you owe $20,000 on a car loan at a 19% interest rate, with 48 months remaining.

• You would pay about $8,700 in interest over time

Now, if that same loan is included in a Chapter 13 plan at a 4% interest rate:

• You would pay about $1,600 in interest

That’s a savings of over $7,000.

If you want to estimate your own savings, you can use this auto loan calculator.

Can Chapter 13 Lower the Balance You Owe on Your Car?

In some cases, yes.

This is done through something called a cramdown.

A cramdown allows you to reduce your loan balance to the current value of your car, rather than what you originally owed.

For example:

• You owe $30,000 on a car
• The car is now worth $20,000

With a cramdown, your loan may be reduced closer to $20,000 instead of $30,000.

However, there are important rules.

The 910-Day Rule (Important)

To qualify for a cramdown:

• You must have purchased the vehicle at least 910 days (about 2.5 years) before filing

If the loan is newer than that, you generally won’t be able to reduce the balance, but you may still be able to lower the interest rate.

This rule is in place to prevent recently purchased vehicles from being immediately reduced in bankruptcy.

How Cramdown Works in Chapter 13

Cramdown is only available in Chapter 13, not Chapter 7.

Here’s how it works:

• Your loan is split into two parts:
  • Secured portion (based on the car’s value)
  • Unsecured portion (the remaining balance)
• The secured portion is repaid through your plan
• The unsecured portion may be reduced or discharged

At the same time, your interest rate may also be lowered, further reducing your total cost.

See What Your Chapter 13 Plan Could Look Like

Because every situation is different, the best way to understand your savings is to run your numbers.

Use the free calculator below to:

• Estimate your monthly payment
• See how much you could save on your car loan
• Compare Chapter 13 with other options

It takes just a few minutes and gives you a clear starting point.