Tuesday, February 20, 2018
Bankruptcy And Car Loans
Personal bankruptcy offers a number of options to address an “too expensive car” problem.
If you’re already in arrears the easiest choice would be to use the power of bankruptcy to cancel contracts and surrender your vehicle back to the lender. In a Chapter 7, any deficiency balance will be discharged as an unsecured debt.
However, the good news is that under a Chapter 13, any deficiency balance will be paid as an unsecured debt, often at pennies on the dollar – and only if the lender bothers to file a proof of claim as required.
There are several other tools available in a Chapter 13 bankruptcy.
For example, if you want to keep your car without the "too expensive" loan, then another option would be to restructure the car loan as part of a Chapter 13.
If your car loan was originated more than 910 days (about 2 ½ years) prior to filing, a Chapter 13 "cram-down" this can allow you to modify the interest rate, reduce the principal to the blue book value of your car, and extend the term for 5 years, all of which has the effect of lowering your car payment, and if you owe substantially more than the value of your vehicle, or if your interest rate is much higher than the market interest rate, this "cram-down" can save you thousands of dollars!
If you cannot restructure the car loan, another Chapter 13 tool available would allow you to reduce your monthly payment by including the unpaid balance in your Chapter 13 plan, and setting a monthly payment that fits your budget.Obviously, the decision to file a Chapter 7 or Chapter 13 should be made in consultation with an experienced bankruptcy lawyer and with full knowledge about how bankruptcy will impact you. But if you have one or more car loans that are causing you problems with payments, you should learn about and consider all of your legal options.
Attorney Mark Williams has over 22 years of experience in bankruptcy. He can help you too. #1 trusted bankruptcy attorney in Guam. The Law really is on your side.
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Wednesday, February 07, 2018
Car loans are our most expensive purchases next to a home loan. According to an article in USA Today, the average cost of a new car or truck is $33,500. Due to lenders now extending car loans to 72 months or longer, when you factor in interest rates, you can easily find yourself responsible for $40,000, $50,000 or more.
Despite popular belief, cars are not an investment asset the reason is because vehicles do not appreciate, they always depreciate. In many cases if you finance a vehicle over 60 months, you may actually owe more on your auto loan than the vehicle is worth.
When a vehicle is underwater (owe more than the value of an asset) the loan can't be eliminated by simply selling the vehicle.
A great example of this type of situation that could cause a calamity would be in the event of a car accident, where a car is "underwater", not only do insurance premiums rise due to an accident claim, but typically insurance benefits are based on the replacement cost, or blue-book value, and not the higher loan balance, so that a car loan which is "underwater" results in you having a balance to pay for a car (which you no longer own after the car has been destroyed in an accident)!
Unexpected changes in income due to a job loss or change in the family, illnesses, "underwater" insurance payouts after an accident, or any number of other factors could turn that car loan into a major financial headache.
Bankruptcy and Car Loans
Personal bankruptcy offers a number of options to address this “underwater car loan” problem.
The easiest choice would be to use the power of bankruptcy to cancel contracts and surrender the vehicle back to the lender. This is only possible in bankruptcy, because any remaining loan balance would be subject to elimination, or discharge. Outside of Bankruptcy, you would still owe the "underwater" portion of the car loan balance.
Another option would be to use Chapter 13 of the Bankruptcy Code to restructure a car loan for a vehicle you wish to keep.
Chapter 13 can often allow you to lower your car loan expense by reducing the principal and lowering the interest rate, and extending the loan term up to an additional 5 years.
Depending on the balance of your car loan, this strategy can save you thousands of dollars.
Obviously the decision to file bankruptcy should be made in consultation with an experienced bankruptcy lawyer. However, if you are having problems with car payments, you should certainly learn about and consider all of your bankruptcy options.
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