Have you recently bought a new car for a good deal then got bogged down by a high interest rate? If so, you’re not alone. Many of our clients come to us with incredibly high interest rates on vehicles. This is because lenders know everyone needs a vehicle and in most places, especially outside of major metropolitan areas, public transportation is very sparse. So, regardless of credit they'll still give you a loan, but if you've got bad credit they'll take you to the cleaners in interest. When this happens, it usually doesn’t matter how good of a deal you got, here's why:
High interest is where the bank makes their money. They capitalize on consumers who are in need of a loan and lack credit worthiness to attain low interest offers. We often see high interest rates when it comes to vehicle loans. They know you have less than ideal credit and they know you need a vehicle. So, what do they do? They give you a loan but they apply extremely high interest rates to the loan. As a result, the vehicle you purchased will likely never be worth what you owe. This is the beginning of an ugly financial future.
Reduce Your Interest Rate By Filing Chapter 13 Bankruptcy
Lucky for you, Chapter 13 Bankruptcy may be an option to help relieve the pressure caused by high interest. Not only can you eliminate your liability on most debts through bankruptcy, but bankruptcy laws allow us to reduce the interest rates on some secured loans through a Chapter 13. In 1999, the Supreme Court rendered a decision in the widely known case of Till v. SCS Credit Corporation. Although this case seemed like the run of the mill bankruptcy at the time, the end result had an everlasting impact on interest rates. Traditionally, high interest rates were designed to compensate creditors to cover their risk of potential nonpayment by the debtor. This still holds true today, but in some instances, Chapter 13 bankruptcy can be used to reduce interest rates so they’re more equitable for the debtor.
Although there have been many arguments against a debtor’s right to reduce the interest rate on certain secured claims, debtors prevailed in the end. Now, in most cases, if a debtor entered into a secured loan prior to the filing of their case, we can adjust the interest rate to Prime + 1-3%. Why the + 1-3%? This is to cover the creditors risk in doing business. The idea is to allow creditors to cover some of their risk, but not nearly as much as they would have had you not filed a Chapter 13.
Stop Paying What You Owe On Your Car, Only The Fair Market Value
Reducing the interest rate is just one of the benefits when it comes to vehicle loans and Chapter 13. Not only can we reduce interest, but in some instances, we can “cram down” the total amount you owe on the vehicle. If you purchased the vehicle more than 910 days (2 ½ years) preceding the date of filing your Chapter 13, we can propose a repayment plan where you only pay the fair market value of the vehicle, plus the adjusted interest; not the full amount the creditor is claiming you owe. For some people, this can be a huge cost savings!
For example, let’s say you purchased a vehicle more than 2 ½ years ago. The lender says you still owe $15,000 at 20% interest. However, current market says your vehicle is only worth $5,000. In this scenario, we can reduce the total amount you pay for your vehicle to $5,000, plus adjusted interest at Prime + 1-3%.
Because this is somewhat new law, the issues discussed here are not completely settled. Then again, legal issues rarely are. However, we have been successful in proposing Chapter 13 plans to provide relief on overwhelming vehicles loans. If you have questions about your particular situation and have interest in adjusting your vehicle loan, please contact one of our experienced MN Bankruptcy Attorneys.
You Eat First, Your Creditors Eat Last
Chapter 13 is essentially a government sponsored debt consolidation plan where you pay back your creditors the amount you can afford to pay back over a 3-5-year period. Typically, Chapter 13 is designed for people who make more than the median household income for their family size, or they have a lot of assets their concerned about protecting. Although those are the typical clients who file Chapter 13, the list is not exhaustive. Occasionally, clients who recently filed a Chapter 7 may choose to file a Chapter 13. Also, we sometimes have clients who simply prefer a Chapter 13 over a Chapter 7.
Quite possibly one of the greatest benefits to filing a Chapter 13, is your payment plan is interest free. As opposed to conventional debt consolidation plans, Chapter 13 payments come with no interest and you may not even have to satisfy all of your debts in-full through the 3-5-year plan. If your payment plan is structured to only satisfy 20% of your outstanding debt over the 3-5 years, any amount left unpaid is forgiven, tax free, forever.
Get Debt Free & Repair Your Credit With Kain & Scott
If you have questions about bankruptcy, feel free to reach out and schedule a free consultation. We will help you get rid of your debt. Not only will we help you get rid of your debt, but we’ll do all of the work for you. We will not make you fill out worksheets, we will pull your credit report, and we offer a free 90-day credit repair program once you receive your discharge.
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If you choose to trust us with your bankruptcy needs, we guarantee to be the nicest Bankruptcy Law Firm or 100% off your fees! Bankruptcy is not just what we do, it’s all we do. We’re here to help you get your life back by eliminating the overwhelming debt hanging over your head.