I do not usually employ scare tactics when discussing bankruptcy. Quite honestly, it only perpetuates the fears and anxieties that people have about bankruptcy, causing a stalling effect in many situations. When people are faced with an emergency, they need to move swiftly and remove barriers for addressing the emergency. With the pandemic lingering into its 11th month, unemployment claims are expected to rise again and new jobs reporting looks bleak. The $600 stimulus check for many families is simply not going to be enough to keep afloat. Financial emergencies are going to be on the rise.
One emergency that is likely to proliferate in 2021, car repossessions. Car lenders have run out of patience (0r maybe compassion) and have jumpstarted vehicle repossessions for defaulted car loans.
You could also cure the default, but chances are you don’t have the funds available to do so. A Chapter 13 bankruptcy allows a borrower to retain the vehicle and pay for it in a 3-5 year repayment plan.
- Reduce Interest Rate. Interest rates on car loans can be as high as 18%, which can add thousands to the amount owed on a loan. In a Chapter 13, you can reduce the interest rate to the prime rate plus 2%. For many, this reduction saves thousands of dollars. You would never have this option outside of a bankruptcy unless you refinanced the loan.
- Cramdown. If the car loan was obtained more than 910 days before you filed your bankruptcy, then you can do a cramdown, meaning that you pay only the value of your vehicle instead of the amount owed. For example: Let’s say you owe $10,000 on your car loan, but your vehicle is worth only $5,000. You would pay $5,000 instead of $10,000. For many people who are underwater on their cars, this can be a huge benefit.
- Effectively Reduce Your Monthly Car Payment. Let’s say that your current vehicle payment is $400/month. You have 24 months remaining, meaning you still owe $9,600 on the remaining months. You are behind 5 months, meaning you have an arrearage of $2,000 for a total due and owing of $11,600. In a Chapter 13, you can effectively spread that payment over a 3-5 year plan (or 36 to 60 months). Spread over 36 months, the modified monthly amount would be $325. Spread over 60 months, the modified monthly amount would be $195. You would never have this option outside of a bankruptcy unless you refinanced the loan.
- Cure Default. You can catch your car loan up through your Chapter 13 repayment plan. You cannot do this in a Chapter 7 bankruptcy.
- Stop a Repossession. Once your bankruptcy is filed, something called the automatic stay goes into effect and puts you and your assets into a protective bubble, meaning the car lender cannot repossess your vehicle.
- Protect Co-Debtors. The automatic stay extends to co-debtors, meaning anyone who cosigned the car loan is also protected.
- Get Your Car Back. Even if your vehicle has been repossessed, you can get it back if you file Chapter 13 bankruptcy before the vehicle is sold at auction.
- Handle All of Your Debt. By filing bankruptcy, you are able to handle all of your creditors in one place and at one time. From a mental and emotional standpoint, you no longer have to expend the energy juggling all of your debt.
Instead of worrying what will come next, meet with a bankruptcy attorney to discover your options tailored to your situation.