Saving Your Car with A Chapter 13 Bankruptcy – In Order to Do So, You Must File Chapter 13 BEFORE Your Car is Repossessed
In the 11th Circuit Court of Appeals case of Lewis v. Charles R. Hall Motors, Inc. (In re Lewis), 137 F.3d 1280, 1282 (11th Cir.1998), the Appeals Court determined that Alabama Debtors cannot compel the return of a car that was repossessed prior to the filing of their bankruptcy case. Occasionally, a creditor will agree to give the car back but you should not count on this happening. If you are behind on your car payments, you need to speak to an experienced bankruptcy before your car is repossessed.
Lowering Your Interest Rate With a Chapter 13 Bankruptcy Case
Many people find themselves in a situation where the only car loan they can get is one with a very high interest rate. In a Chapter 13 case you can lower the interest rate you are paying on your car. For example, if your interest rate is 29% (yes, I said 29% and yes I see loans like this everyday), you can reduce to interest rate to as little as 4.25% in the Western Division of the Northern District of Alabama.
On a $20,000 loan the payment at 4.25% would be $394.36 per month. At the 29% interest rate, the payment was $655.43 per month. That is a savings of $261.07 per month!
Save Even More By Reducing The Amount You Have To Repay
The bankruptcy code allows a debtor to split (“bifurcate”) a secured claim into two parts when the value of the property is less than the amount owed. One part of the claim is treated as a secured claim while the remaining balance is treated as an unsecured claim. There are two conditions that must be met for you to bifurcate a car claim in Chapter 13:
- first you must have owned the car for more than 910 days or the loan on the car must be one that was not used to purchase the vehicle; and
- second, the value of the car must be less than the amount you owe.
The Real Life Savings
Lets stay with our same example that we used above to show you how this works in real life. The $20,000 loan is secured by a car that is 8 years old and is only worth $8,000. The Debtor purchased the vehicle 3 years ago. In the Chapter 13 plan, the debtor can propose to repay the car debt as follows:
- Secured portion of $8,000;
- Interest rate of 4.25%;
- Unsecured portion of $12,000 paid at the same percentage as other unsecured claims (the percentage rate could be from zero to 100%);
- repayment period of 56 months;
- The resulting payment would be $158.00 per month;
- TOTAL SAVINGS: $497.43!
Saving Your Car and Saving Big Bucks
As you can see, Chapter 13 can help you to save your car and at the same time save a lot of money. Speak to a professional to gain the assistance you need.