REDUCING CAR PAYMENTS IN BANKRUPTCY

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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Check out more valuable information about Guam's Laws and working with Mark Williams, Guam's Best Lawyer, on Dededo Law Office's website, www.GuamLegal.com. http://www.injurylawyerguam.com/  http://bankruptcylawyerguam.com/