Do any of these scenarios sound familiar?
Scenario Number 1:
You finally did it. The car you had your eye on. You saved for the down payment, and the payment was affordable. Then you lost your job. Now you’re stuck with a car payment you can’t afford.
Scenario Number 2:
It wasn’t your fault. You weren’t on your phone. You were driving the speed limit. But the other guy wasn’t. Your car was totaled. The at fault driver’s insurance company is lowballing you on your car’s value. You owe more money than the insurance company will pay. Now you owe money on a car you no longer have.
Scenario Number 3:
You are halfway through paying off your five-year car loan. There’s nothing wrong with the car. In fact, you kind of like it, but you owe way more than the car is worth. On top of that, you have lots of other debt. Is the car worth keeping? If you find yourself in any of these situations, bankruptcy might be right for you.
Bankruptcy can get rid of unwanted car loans, help you lower your car payment, lower your interest rate or stretch out the loan term. Don’t misunderstand – you don’t get a free car. But bankruptcy can offer several different ways to handle your unique situation.
In Chapter 7, you can either surrender your vehicle and discharge the loan, simply continue making your car payments per the terms of your note with your lender or redeem the loan. If you choose to redeem the loan, you can get a court order that you only have to pay your car’s value to the lender, instead of what you actually owe on the loan. But there’s a catch – you generally have 30-60 days to come up with the money. Chapter 13 offers more opportunity for you to improve your situation with your lender.
In Chapter 13, you can “cram down” your car loan if the loan is over 910 days old. In other words, if the loan is 2 ½ years old, you can pay the car’s value in a 3-5 year Chapter 13 Plan. Even if the loan is less than 2 ½ years old, if the vehicle was purchased for business purposes, you may still be able to do a cram down. Chapter 13 offers three more possibilities even if a cram down is not possible.
You can stop repossessions and catch up missed payments, you can reduce the interest rate on the car loan (potentially saving thousands) and you can stretch out the loan to make the payment more manageable. Don’t let what seems like a bad situation with your car loan bring you down. Bankruptcy could be the answer.