Hi - my name is XXXXX XXXXX X'X a Bankruptcy and Consumer Protection attorney here to assist you.
Under certain circumstances, filing a Chapter 13 (not a Chapter 7) Bankruptcy can result in lower car payments.
1) How long have you had the car loan?
2) What is the current market value of the car?
3) What is the balance on the car loan?
1) Ihave had the car for 2 years
I have had the car for 2 years
i owe 22000
market value is 1600
HiCustomerIn Chapter 13, you can often "cram down" a car loan, meaning you only have to pay what it is worth, not what you owe, and the difference is discharged by the bankruptcy. You can also often improve your interest rate, since in Chapter 13 you get what is called the "Till" interest rate, which is about 1% over prime rate. It is called the "Till" rate since it was the In re Till case that established this interest rate for Chapter 13.However, whether or not you can cram down the value depends on a couple of things: if the loan is a "PMSI" loan (purchase money security interest loan), meaning you got the loan to buy the car, then you can only cram down the value if you have had the loan at least 910 days (i.e. about 2 1/2 years).But, if the loan is a "non-PMSI" loan (non-purchase money security interest), meaning you owned the car outright then used the title as collateral for a loan, then this 910 day rule does not apply and you can cram down the loan in Chapter 13 anytime after getting the loan.So, if a person has a car loan they got 2 years ago on which they owe $22,000 but the car is only worth $1,600, then in Chapter 13 that person would only have to pay $1,600 at the Till interest rate (about 4.25% today) IF the loan is a non-PMSI loan. If the person got the loan to buy the car (PMSI), then that person would usually be better off to wait another 6 months until the 910 days have passed since they got the loan before filing Chapter 13, so that the person doesn't have to pay $22,000 for the car in the Chapter 13.Another option is to file Chapter 7 and file a Motion to Redeem under 11 U.S.C. 722. This does NOT require the loan be at least 910 days old, so it can be done anytime and the vehicle can still essentially be crammed down. But, the person does NOT get the Till interest rate, and has to come up with the money for the redemption all at once. Also, the car must be used for personal or household use and not for business. For example, if a person has a car loan on which they owe $22,000 but the car is only worth $1,600, and this car is the person's personal car, not a business vehicle, then during the Chapter 7 case, that person can file a Motion to Redeem pursuant to 11 U.S.C. 722 and ask the court to order the creditor to accept $1,600 as full and final redemption of the vehicle. The creditor has the opportunity to object to the Motion if they believe the car is actually used for business purposes, or if they believe the value the debtor placed on the car is too low. Either way, as long as the court does not decide the car is used for business purposes, the court will determine what it believes the accurate value of the car to be, and then the court will order the creditor to accept that value in a single, lump sum payment from the person, usually due in about 30 days. So, the person would give the creditor a check for $1,600, and the creditor would have to tender title to the person, and the remaining balance on the car would be discharged by the Chapter 7.The catch is coming up with the $1,600 in a lump sum; tough to do without having a retirement account you can pull it out of or without a rich uncle. You can't come up with the money before filing the Chapter 7 (such as holding a tax refund check) since any cash you have on the day the bankruptcy is filed has to be turned over to the Chapter 7 trustee to give to creditors, so the money has to be pulled together after the Chapter 7 is filed. You are allowed to go get a loan after the bankruptcy is filed to come up with the $1,600, but it would probably be at a high interest rate. One company that gives such loans as long as the car isn't too old or have too many miles, is 722 Redemption Funding, whose website it here: https://www.722redemption.com/home.php.Or, if you can find another company to give you a loan, borrow it from a family member, get it from a retirement account, life insurance policy, home equity loan, etc, then those will often work also.I hope this helps!Thanks,JoeLEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Funds I receive from JustAnswer.com are gratuities paid to me for taking the time to respond to questions, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. JoeLawyer is an attorney but does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) JoeLawyer. All rights reserved.
DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.
The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).