When you fall behind on your auto payments, there's a good possibility the bank will repossess the vehicle and sell it to satisfy your loan obligation. Filing chapter 13 bankruptcy can prevent that from happening and, in some cases, reduce the amount you actually owe. Here are two ways to use chapter 13 bankruptcy to manage your past due car note and avoid repossession 

Cramdown the Loan

A legal maneuver you can perform during a chapter 13 bankruptcy to deal with an overdue car loan is a cramdown. This procedure involves paying only the vehicle's market value and getting any amount above and beyond that discharged. For instance, if your auto loan balance is $15,000 but the car is only worth $10,000, you would only pay that amount and the remaining $5,000 would be eliminated when your bankruptcy case ends.

The reason why part of your loan would be written off like this is that the bankruptcy court only considers the auto loan to be secured up to the vehicle's market value since this is the amount of money the creditor would receive if it confiscated the vehicle and sold it to recoup its losses. Any amount owed on the loan beyond the market value is considered unsecured debt and dealt with accordingly. Since unsecured debt is typically considered low priority in bankruptcy court, it's paid last and usually eradicated if there isn't enough money to cover what's owed.

A cramdown is an excellent way to make your vehicle more affordable, especially if you're underwater. Be aware, though, that your loan must meet a few criteria to be eligible. For example, the loan must be a minimum of 910 days old to qualify. This is to prevent people from purchasing brand new vehicles and then filing bankruptcy to avoid paying the full amount owed.

There may be other requirements for cramdowns, so it's essential you speak to a bankruptcy attorney about this option to ensure you qualify.

Pay the Past Due Amount

If your auto loan doesn't qualify for a cramdown, the other option is to take advantage of the automatic stay to get caught up on your auto loan payments without fear of having the vehicle repossessed. The automatic stay prohibits creditors from performing any type of collection activity while your bankruptcy case is active. So, even if you are a year behind on your payments and managed to dodge the repossession agent all that time, the bank can't touch the vehicle until your bankruptcy case ends.

This means you can use the time afforded you by the bankruptcy court to get caught up on your past due payments and either continue paying the bank when the case ends, get the vehicle refinanced, or trade it in for something else.

Falling behind on your auto note doesn't mean you have to give up your vehicle. Contact a bankruptcy attorney for more information on how a chapter 13 petition can help you get your finances in order or visit sites like http://www.haven-law.com/ to learn more.