Home owners have been hit hard in the loss in value in their homes. The recession has resulted in very few home owners having positive equity in their house. The same is true for most when it comes to their vehicles. Even in good times car values nose dive pretty much from the day we purchase them. Further, banks continue to extend the terms on car loans. It used to be that it was rare to see a loan longer than 36 -60 months. Now I routinely see loans of 72 months up to 96 months! Many of these long term loans come with high interest rates and payments approaching (and sometimes exceeding) $1,000 per month. This is a tough payment to swallow when the value of the vehicle has depreciated significantly; this is especially true with SUVs and trucks.
Both Chapters 7 and 13 under the Bankruptcy Code provide for the vehicle owner to keep the vehicle but only pay what the vehicle is worth, not what is actually owed, and significantly reduce the interest rate on the loan. This can save thousands in the total amount paid and years off of the term of the loan and make that SUV or truck worth keeping.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy case, car owners are permitted to “redeem” their vehicles. 11 U.S.C. 722 provides that a car owner in a Chapter 7 bankruptcy can pay the holder of the note on the car the full amount of what it is worth at the time the Chapter 7 bankruptcy case was filed. For instance, if you own a Ford F350 truck that you owe $35,000 on, but Kelley Blue Book estimates that the truck is only worth $15,000, if you can pay the full $15,000 in a lump sum the remaining balance owed will be discharged through the bankruptcy. Of course most people who are in a Chapter 7 bankruptcy don’t have $15,000 lying around, so that begs the question where do people get the money to redeem their vehicles? My office uses a company called 722 Redemption Funding (www.722redemption.com ) . This company has its financing through U.S. Bank and will make redemption loans to people in bankruptcy. It is true the interest rates are higher than a normal loan due to the risk, however they are good at providing a side by side comparison and for most, even with the higher interest rate, will pay less than what was originally owed on the vehicle.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is a personal restructuring of your debts. In a Chapter 13 bankruptcy case you can also pay the value of your vehicle instead of the amount owed, however there are restrictions on this in Chapter 13. Your car must have been purchased more than 910 days (2.5 years) prior to the filing of your bankruptcy case. If your car was purchased more than 910 days ago, then we can “cram-down” the amount owed down to the value of the vehicle. Further, we can adjust your interest rate to 5.00% If you purchased your car within the last 910 days you can’t use the chapter 13 cram down tool but must pay the full amount owed. However, even when the car was purchased within the last 910 days we can adjust the interest rate to 5.00% which will lower payments.
Chapter 7 bankruptcy and Chapter 13 bankruptcy have many powerful tools that can be used in helping you prepare a plan to get back on your feet financially. JacksonWhite bankruptcy offers a free consultation to discuss your specific situation and determine what the best path will be.