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Under most circumstances, vehicle loans are included in the Chapter 13 monthly plan payment. If a vehicle was purchased within 90 days of filing, the debtor will pay back the loan balance with interest through their Chapter 13 plan. However, it is possible for debtors to negotiate interest rates lower than the contract rate while paying their auto loan balance in a Chapter 13.

If the vehicle was purchased more than 910 days ago, debtors can bifurcate their car loans through their Chapter 13 plan, meaning they can pay the fair market value of the vehicle (if lower than the loan balance) with interest through their Chapter 13 plan. In this situation, debtors also have the opportunity to negotiate an interest rate that is lower than the contract rate. The remaining loan amount (i.e., the difference between the loan amount and the fair market value) is treated as unsecured debt. In Chapter 13 bankruptcy, unsecured debts are paid without interest. Many Chapter 13 plans don't require repayment of a debtor's unsecured debt.

If the vehicle loan is co-signed and the co-signer is not a spouse who filed the bankruptcy along with the debtor, the debtor has the option of not including repayment of the auto loan in the Chapter 13 plan. In this situation, the monthly car loan payments and interest rate would be unaffected and the car loan payments would have to be maintained in order for the debtor and/or co-debtor to remain in possession of the vehicle. In the alternative, a debtor who wants to include a vehicle loan that's co-signed (not by a spouse who is filing bankruptcy along with the debtor) in their Chapter 13 plan can choose to do so. However, the debtor must pay the auto loan balance in full at the contract rate of interest if he/she wishes to protect the non-filing co-signer from collection efforts by their car creditor.

Finally, some clients decide that they would like to surrender their vehicles when filing a Chapter 13 case. In this situation, the loan balance, including any deficiency balance after sale of the vehicle, is treated as unsecured debt. As previously stated, many Chapter 13 plan don't require repayment of a debtor's unsecured debt.

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