The average cost of a new car in year 2018 is over $36,000. Interest rates are increasing quickly. The combination of higher priced vehicles and higher interest rates has combined to create payments that are very high. It is no wonder car lenders are now pushing six and seven year car loans on consumers to keep up sales!
If you have a bad car loan, or one that is unaffordable, there are some unique ways to fix this problem by use of the Chapter 13 bankruptcy code. First, when a Chapter 13 is filing, a car lender is only entitled to be repaid at a “reasonable” interest. Recently, this has meant 4.5% to 5.5% interest. Some lenders are charging greater than 20%, so the savings to you is huge when the interest rate is adjusted to one that is reasonable. Second, if you have owned the car long enough, the lender is only entitled to be paid what the car is worth and not what is owed. Most of my clients are “underwater” on their vehicle loans, so the adjustment saves thousands of dollars for the clients.
To illustrate how this works, assume that a person has a car loan for $20,000 on a vehicle that is only worth $15,000. The loan is to be paid at 19.0% interest. Over the life of the loan, the lender receives $11,129 in interest for a total payment on the car of $31,129. In the context of a Chapter 13 bankruptcy, the lender is entitled to receive $15,000 at a 5.0% interest rate for a total payment of $16,984. That’s a savings of $14,145!
In most cases, unsecured debt, such as credit card debt, medical debt, etc. does not have to be repaid in a Chapter 13 bankruptcy. When you add the savings from the car loan adjustment with the savings from the discharge of the credit cards and other unsecured debt, you can see why there is a huge benefit to a Chapter 13 for a family that is carrying car payments and debt. A Chapter 13 is a “reorganization case” because it reorganizes and adjusts the debt into classes where some debts must be paid and other debts do not ordinarily get paid. It is a very useful tool to correct the very American problem of having just enough income to pay the minimum bills but prevented from getting ahead.
If you would like to have a free consultation to discuss your situation, please Contact us.