Most people need access to a reliable vehicle in order to travel to and from work or social engagements each day. For consumers with bad credit, an auto loan can be financially devastating. Many auto loans extended to those with low credit scores come with extremely high interest rates or vehicle purchase prices that exceed the value of the vehicle itself.
If you are struggling under the weight of your debts, including a car loan, filing for Chapter 13 Bankruptcy can help.
1. Filing Chapter 13 bankruptcy allows you to cramdown your loan balance.
It's important that you compare the remaining balance on your auto loan to the fair market value of the vehicle as you consider filing for Chapter 13 bankruptcy. One of the benefits that you can enjoy after filing your bankruptcy petition is the opportunity to request that the balance of your loan be reduced in an action referred to as a cramdown.
Your lender might contest the amount you propose, but a judge will likely award the average market value of your vehicle. A cramdown can knock thousands of dollars off the balance of your loan, allowing you to more easily make your payments throughout the bankruptcy.
2. Filing Chapter 13 bankruptcy lets you cramdown your interest rate.
Because auto lenders view those with low credit as a higher risk, bad credit auto loans often have very high interest rates. Requesting a cramdown of your interest rate during a Chapter 13 bankruptcy can significantly lower your interest rate.
The court typically awards an interest rate that is close to the prime market rate. If your interest rate is in the double digits, your monthly payment could drop tremendously after an interest rate cramdown.
3. Chapter 13 bankruptcy can extend your repayment period.
Regardless of the amount of time left on your auto loan, including the debt in a Chapter 13 bankruptcy filing gives you the full repayment period associated with the bankruptcy to repay your debt.
Extending the repayment period on your auto loan can help lower your monthly payments to a more manageable level. Once you have completed all your scheduled payments, any remaining balance on your loan is dismissed when your Chapter 13 bankruptcy is discharged.
An auto loan can be a source of financial strain. Combining the power of a balance cramdown, an interest rate cramdown, and a repayment extension by filing for Chapter 13 bankruptcy can help you alleviate crushing car loan debt without sacrificing access to your vehicle. For more information, contact a local bankruptcy attorney.