I'm behind on my car payment one month and filing bankruptcy, do I have any recourse if I want to keep the car?
Portland, OR |
My lender said I need to have my car payment current before i file chapter 13. I've read that it depends on how long we've had your car. They are bulling me I feel. I don't have the money right now hence filing chapter 13. Ugh!
Why would you rely on your lender for legal advice? After all, you can't expect them to tell you something that isn't in their interest. The person you spoke with for advice probably isn't anything more than a paralegal with a high school diploma, if that, and isn't qualified to advise you.
For legal advice & how to address this situation in your Chapter 13, retain an experienced attorney with experience to help you solve your financial problems.
You can use the chapter 13 to cure the default in payments on the car. You do not have to be current on the car to keep it when you file the 13. Depending on how long ago you bought the car you may be able to only pay back what the car is worth. Also you may be able to reduce the interest rate on the loan. You should talk to a bankruptcy attorney and discuss the details of your case.
The answer above is for general information purposes only. You should talk to an attorney to determine your specific legal rights.
Be sure your attorney knows the status of your loan payments before drafting your chapter 13 plan. The payment(s) you are behind can be included in your plan to help you get caught up. You will have to find a way to STAY caught up once your bankruptcy case has been files.
A Chapter 13 case provides an opportunity to formulate a living expense budget and use any remaining funds to repay any missed payments through a Plan of repayment. Also, in Chapter 13 a motion can be filed to reduce the interest rate on the contract down to the national prime rate of interest, which at present is 3.25%, plus an additional 1% to 3%, so perhaps the debt can be restructured at a lower interest rate which might reduce your payment amount. In addition, the term of the loan could be extended over as long as an additional 5 years, and that, too, could reduce your payment amount. Reduction of interest rate and extension of term can be done regardless of when you purchased the car. Finally, if you purchased the car more than 910 days -- that's two and one-half years -- before the date you file the Chapter 13 case, then the Court may also reduce the amount of the debt down to the value of the car, if, say, you owe $8,000.00 but the car is worth $2,500.00, then the debt to be repaid could be reduced to $2,500.00 and coupled with a reduction of interest rate and extension of term, your car payment could be significantly reduced. You do not have to be current on the car payments at the time the Chapter 13 case is filed, however, it is generally best to continue to make the contractually-agreed car payment after you file the Chapter 13 case until such time as the Court ahs entered an Order reducing the car payment. Sometimes, the Chapter 13 trustee will ask that this reduced car payment be paid to the Chapter 13 trustee under a plan -- rather than directly to the car lender -- on the premise that you have used Chapter 13 to affect the amount of the payment (however, I prefer that my clients make the payment to the lender because that assists the client in "getting back on the path" to financial recovery by taking responsibility for their obligations..
No Attorney-Client Relationship
This response is not legal advice and does not create an attorney-client relationship between you and my office. I am not your attorney and you are not my client. You cannot rely on my response to your question. This response is intended only for general informational purposes and should be used only as a starting point for addressing your legal issues.
If you haven't filed a chapter 13 yet, you ought to reconsider whether it is in your best interests to file a chapter 13 or a chapter 7 case. If you "don't have the money right now," in terms of filing a chapter 7, then it may difficult for you to sustain the required plan payments over the life of the chapter 13 plan. (In fact, statistically only about 40% of the people who file chapter 13 cases successfully complete their plans!)
It is true that in most cases you have to be current in your payments before a lender will let you reaffirm a debt in chapter 7. But if you have a car that is worth significantly less than what you owe, you may also have the ability to "redeem" the vehicle for fair market value. To "redeem" the collateral, you must make a lump-sum payment equal to what the car is currently worth. Then the bank must release its lien and you will own the car free and clear.
Lucky for you, there are actually some companies out there, such as 722 Redemption, who will make redemption loans to debtors in chapter 7 bankruptcy. They are usually high-interest, short-term loans, but since you're presumably paying a lot less on the loan balance, your car payment can actually go down and you could actually own it much quicker. This is not an option for everybody, but in the right circumstances, it can solve a very specific problem without subjecting you to prolonged court supervision.
The other thought is that if the car loan is the only thing pushing you toward chapter 13, you might want to consider letting the car go in a chapter 7 case (or replacing it with another car before the bankruptcy filing).
All of these issues should be discussed thoroughly with an experienced bankruptcy practitioner in your area.
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