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Can I use bankruptcy to lower my car payment?

On Behalf of | May 23, 2018 | Firm News

If the car you are paying for each month is causing you extreme financial hardship in New Bern, you might be looking for ways to lower it. When you add up all the interest you are paying on it, you might realize you are paying far too much for a vehicle that is no longer worth its original value. 

Before you rush to file for bankruptcy, take some time to consider the following information on Chapter 13 Bankruptcy and making your car not more affordable. 

Use your vehicle’s depreciation to your advantage 

The moment you drove your vehicle off the lot, it lost some of its value. You owe more money than the vehicle was worth. If you were to file for Chapter 13 bankruptcy, you could use it to cramdown (reduce) the principal balance so it is the same as the vehicle’s current value. Consider this: If you drive an SUV that is worth $5,796 and you owe $15,672 on it, the cramdown would lower the principal balance to $5,796. 

To qualify to cramdown your car note, your vehicle use must be for business purposes, you do not drive it but someone else does, your car loan must be more than two years old, or you used your car as an asset to secure personal funds. 

Lowering the interest for a lower payment 

For active vehicle loans that are younger than two and half years, you may have to use the “prime plus rate approach.” The courts will use the national prime rate and other factors to redetermine the interest on your car loan. This method can result in a significantly lower car payment because you will owe less for the total amount. Also, Chapter 13 is a repayment plan. Your lowered interest amount would apply to the life of the loan, which you will have up to five years to pay off.

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