Chapter 13 Bankruptcy and Vehicles
Chapter 13 bankruptcy is an excellent way to keep your car and pay it off at a reasonable interest rate. Almost everyone has a car. And nearly everyone has a car payment. Sometimes we get that car we’ve always wanted and then wham! Something happens and we’re searching for a way to continue being able to afford that car.
If you’re in a situation where you’re struggling to make car payments as well as making ends meet, Chapter 13 bankruptcy is an excellent option to consolidate debt and get your car paid at a reasonable interest rate.
What happens in Chapter 13? Basically you pay your “monthly disposible income” to a bankruptcy trustee over a period ranging anywhere from 3 to 5 years. The money you pay to the bankruptcy trustee goes to creditors. What creditor gets what funds, depends on the nature of the creditor. In chapter 13 bankruptcy, secured creditors get paid before unsecured creditors. So if you had a vehicle loan and file chapter 13, the lender for the vehicle would be paid before, say, a credit card.
Let’s look at an example. Assume Bob has a car he’s owned for 1 year and owes the bank $25,000.00 at 9% for the vehicle. Assume Bob also has $50,000.00 in credit card debt. In this situation, Bob could file chapter 13, make a monthly payment to a bankruptcy trustee, and pay his vehcile off at a 4% interest rate, rather than a 9% interest rate. At the end of his bankruptcy plan, not only would Bob’s car be completely paid off, but the $50,000.00 credit card debt Bob had would be discharged as well. This works out great for Bob, because not only is he out of that horrible credit card debt, but he’s also paid his car off fully, and he’s only paid $2,622.35 in interest at 4%, rather than $7,034.61 in interest at 9%.
Note: I’ve seen many monthly chapter 13 plan payments that are less than the individual’s actual vehicel payment.
If you’re in a difficult financial situation and have a car that you don’t want to lose, consider all of your options. Consider Chapter 13 bankruptcy.
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