Question of the Week

Question: What is the 910-day rule in bankruptcy?

Answer: The 910-day rule refers to a provision in Chapter 13 bankruptcy statutes that allows a person who has acquired a loan more than 910 days prior to filing to reduce the loan balance required to pay off the car to the value of the car. This reduced loan balance must be included as part of the Chapter 13 repayment plan in order for the court to approve the plan.

The remainder of the car loan above that market value is reclassified and separated out as a nonpriority unsecured loan and paid out with similarly classified claims.

So if a member had a car note with $15,000 remaining but the car was only worth $8,000, that member could reduce the amount necessary to satisfy that loan in a Chapter 13 bankruptcy to $8,000 (as long as the car loan was 910 days or older). The remaining $7,000 would be reclassified as an unsecured claim (similar to unsecured credit card or signature loans) and paid according to whatever pro rata payment the bankruptcy plan is approved to pay for those kinds of claims. Often times, these unsecured claims are not paid at all in bankruptcy, so the credit union may take a loss for this amount.

This reduction in the value of the secured part of a loan is known a “cramdown."