How a Chapter 13 Can Help You Reduce Your Burdensome Car Payment

Are you currently paying a burdensome car payment; a payment that is much too high for the vehicle that you are driving. Is the high monthly payment effecting your ability to pay other bills and to properly budget your income.  If the payoff on your vehicle is higher than the value of the vehicle, and you have been paying on the car loan for at least 910 days (2 1/2 years),  a Chapter 13 bankruptcy can provide a solution for you.

If those factors are present, you can file a Chapter 13 and provide in your Chapter 13 plan to cramdown the vehicle.  For example, if your car is worth $5,000, but you owe $10,000, and you are paying $400 per month and interest of 10% on the note, and you have been paying on the loan for 30 months; we can propose in your chapter 13 plan to only pay the creditor the value of the car, $5,000.00 over the life of your Chapter 13 plan at a reduced interest rate.  Based on the Supreme Court Decision in In re Till we can lower the interest rate to whatever the prime interest rate is, plus one percentage point.  So presently that would be 4.25%, which is clearly much lower than the 10% being paid currently under this example.

Thus, the result is that you get to retain the vehicle and only pay what it is worth versus what you actually owe on the vehicle.  The difference that is not being paid would be treated as an unsecured debt and ultimately discharged once your Chapter 13 plan is completed. You have effectively lowered your monthly payment on the vehicle by a minimum of $250 per month and now created some more disposable income each month for yourself.


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