When you file for bankruptcy, you are doing so 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. However, you have a vehicle, and you need to keep your car. After all, it is what helps you take the kids to school, get to and from work, and so forth.
Unfortunately, not all bankruptcy cases allow you to reduce your car payment automatically. That being said, there are methods that your bankruptcy attorney can try to deploy to lower the amount, if you qualify.
The Value of Your Car Versus the Amount Due
Typically, the courts want to see a car that is worth less than what you owe. If that is the case, you might qualify for lowering the car payment to something more reasonable, but only through Chapter 13 bankruptcy.
After you purchase a vehicle, it is common for that car to depreciate from the moment you drive it. Therefore, it loses value rapidly compared to how quickly you pay down the loan. By reducing the balance owed on the car to the value it currently holds, you might reach a more affordable payment option.
Chapter 13 Bankruptcy and the Payment Schedule
When you file 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 disburses the payments amongst your creditors that are rolled into the bankruptcy repayment plan.
Your payments are based on your income at the time of 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.
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.
Speak with a bankruptcy attorney now from Hames, Anderson, Whitlow & O’Leary to explore your options. You may schedule a no-obligation consultation now by calling our offices at 509-586-7797, or you can request your appointment online.