I commonly meet clients that have really high auto loan payments, who are wondering if we can help by reducing their monthly payments in a chapter 13 bankruptcy. The short answer is Yes, but there are criteria that need to be met.
In most cases, the payments are high not because they are paying for a Mercedes or a Porsche, but rather because they have a higher-than-normal interest rate. Another reason may be that they had to roll negative equity into their auto loan when they traded in their car because it was worth less than the amount of the loan owed against it. If either of these scenarios sound familiar, keep reading to see how we could help.
Chapter 13 Principal and Interest "Cramdown"
When filing a Chapter 13 bankruptcy, the code allows debtors to do this really helpful thing where they can cram down the amount owed on their auto loans if certain criteria are satisfied. First, the amount of the auto loan must exceed the value of the automobile based on a current retail market valuation (Typically this is a NADA valuation rather than Kelly Blue Book).
Second, the auto loan must exceed 910 days in age (basically two and a half years). If these two conditions are met, it is very likely that in a Chapter 13 bankruptcy we will be able to reduce your interest rate and your principal balance, thereby reducing your monthly payments by paying them through a 36 month to 60-month chapter 13 plan (the length of the plan depends on income-based factors, and is determined on a case-by-case basis). *This option may also apply to other types of debt and loans where your vehicle is held as collateral.
Chapter 13 Interest Rate Cramdown
In most cases where the above criteria is not met, we are still able to cram down the interest rate if it is above 5.5%, thereby reducing the monthly payments and the total amount that will be paid on the loan over time. Although this does not offer the same level of relief that the principal balance cramdown offers, it can still be very helpful depending on the length of time left on the loan and how high the interest rate is.
For example, if you have an auto loan with a principal balance of $20,000 and an interest rate of 12%, the total you would pay over a 60-month loan would be approximately $26,694. If we were to cram down that interest rate to 5.25%, we could save you approximately $4000 over the course of that 60 months and reduce your monthly auto loan payments by about $70/month.
CALL NOW FOR A FREE STRATEGY SESSION FROM A MN BANKRUPTCY LAWYER AT KAIN & SCOTT
If you are currently struggling with your mounting monthly debt and auto loan payments and are dealing with either an upside down loan, or a high interest rate, and would like to find out if we can help, please do not hesitate to reach out to Minnesota’s nicest bankruptcy law firm at www.kainscott.com for a free consultation to find out. We look forward to hearing from you and helping you get a handle on your debt and get your life back!
