You file for bankruptcy because you can no longer manage your debts. Whether it is because you lost your job or took a significant cut in pay, you need to eliminate monthly debt obligations to get back on your feet. But you need to keep your car. It is how you take the kids to school and get to work.
Filing bankruptcy might not allow you to automatically reduce your car payment. But there are strategies your bankruptcy attorney can use to lower the amount, if you qualify.
The Value of Your Car Versus the Amount Due
If your car that is worth less than what you owe, a Chapter 13 bankruptcy might allow you to lower your car payment.
Your payments are based on your income at the time of the Chapter 13 bankruptcy. Therefore, the size of your monthly payment will depend on what you make and what the court feels are acceptable living expenses to deduct. The remainder of your income is devoted to repaying your debts.
In some instances, this works in your favor. You keep your vehicle, and you might lower the monthly payment. The vehicle is also a secured claim, because you do not own it until you pay the loan in full. Therefore, the lender is paid before other creditors to satisfy the arrears, as well as the remaining balance.
Chapter 13 Bankruptcy and the Payment Schedule
When you file for Chapter 13 bankruptcy, you do not take a pay-what-you-can approach. Instead, the court assigns a trustee. The trustee looks after your accounts, and you make payments to the trustee. Then, the trustee distributes the payments to your creditors in the bankruptcy repayment plan.
The interest rate on your car could also be reduced by the judge, especially if the interest rate is too high for the consumer market. The remaining balance of your vehicle loan is also paid through bankruptcy, but the courts typically require you to pay the market value. The rest of the balance due is then paid pennies on the dollar.
Need to File for Bankruptcy and Save Your Vehicle? Contact an Attorney
Not all bankruptcies easily qualify for a lower car payment, or even the ability to keep the vehicle. If your vehicle is worth more than you owe, the courts might require you to sell the vehicle and give the assets to the trustee to pay down debts. However, when you have an attorney who understands the complex nature of Chapter 13 bankruptcy, you can increase the likelihood of both receiving lower car payments and keeping the car.
For help with your bankruptcy options, contact us today.