Are you struggling to make your car payment? Are you already behind? Are you worried your lender may try to repossess your car soon? If you answered "yes" to any of these questions, a Chapter 13 could provide the relief you need.
Can a Chapter 13 Bankruptcy reduce your car payment?
In a Chapter 13, you submit a Payment Plan to the Court. This Plan reorganizes your debts, and your monthly payment is restructured based on the amount of unsecured and secured debts, your income or ability to repay, and any equity above allowed exemption amount. Your car loan is classified as a secured loan, because it is backed by collateral, your car. A Chapter 13 can reduce your monthly car payment in 3 ways:
1) The interest rate of your loan could be reduced. If you are currently paying a high interest rate, the Court could approve your Plan subject to a reduction of that rate - saving you money every month.
2) A Chapter 13 Plan last 3-5 years. Depending on how long is left on your current car loan, your loan could be "stretched out" further that what is currently remaining - reducing the payment you owe each month.
3) There is a special rule called the Vehicle Cram Down Rule. To qualify, you must have had your car loan for more than 910 days. If you are loan has a balance of $20,000 but the current value is only $10,000, the Cram Down Rule will allow you to reduce the balance to the current value of the vehicle, $10,000, instead of the full amount you currently owe, $20,000.
This is just one example of how a Chapter 13 Bankruptcy could reduce your monthly payments and provide some relief if you are currently struggling or behind on your payments. As always, reach out to a professional if you have any questions or need assistance. We are always here to help and offer consultations at no charge to you.
