Here Are Your Options
By Jay Weller
Many of the Clients of Weller Legal Group have difficulties presented by their Automobile Loans. Loss of income, or unexpected financial circumstances sometimes leaves a Client delinquent on his Automobile Loan and in danger of Repossession. Sometimes, the monthly payment is too burdensome for the Client to pay, with the attendant other Debts he may have. Bankruptcy can help these Clients in numerous ways.
In a Chapter 13 Bankruptcy, or what is referred to as a Debt Consolidation, the Bankruptcy Attorney can sometimes arrange for the Valuation of the Automobile. To Value the Automobile, means the Bankruptcy Attorney arranges, through the Chapter 13 Plan, for the Debtor to pay only the true Fair Market Value of the Automobile, over a period of sixty months.
For example, if the Automobile has a Fair Market Value of $8,000 and the Debtor owes $14,000 on the Automobile Loan, then the Bankruptcy Attorney can arrange for the Debtor to pay $8,000 plus a generally reduced Interest Rate through the Chapter 13 Bankruptcy. The remaining $6,000, which represents the Unsecured portion of the Automobile Loan, is generally Discharged in Full through the Chapter 13.
In order to Value the Automobile in Chapter 13 Bankruptcy, the Debtor must own the Automobile for more than 910 days. If the Debtor does not own the Automobile for more than 910 days, then he cannot Value it. Even if the Debtor owned the Automobile less than 910 days, then he still may “Refinance” the Automobile in the Chapter 13 Bankruptcy, in which the Bankruptcy Attorney can arrange to lower the Interest Rate to Prime plus 1 or 2. As of the writing of this Article, the Interest Rate generally accepted by the Bankruptcy Court is 5.2%. The Automobile Loan can be stretched to as must as Sixty Months, which usually lowers the Monthly Payment dramatically, and saves the Debtor a significant amount in Interest.
In a Chapter 13 Bankruptcy, if the Debtor is behind on his Automobile Payments, then upon the filing of the Chapter 13, the missed payments or Arrearages, are essentially waived. The Debtor can also elect to simply pay the Arrearages owed on the Automobile through the Chapter 13 Bankruptcy and make regular monthly payments pursuant to the Terms of the Automobile Loan.
A final option in Chapter 13 Bankruptcy is to Surrrender the Automobile to the Creditor or Lien Holder, in which case the Automobile is Surrendered in Full Satisfaction of the Debt.
In a Chapter 7 Bankruptcy, there are less options regarding Car Loans, but there is a tool available to Bankruptcy Attorneys called Redemption. Redemption means that the Debtor Redeems the Automobile by paying to the Creditor, a single payment that represents the Fair Market Value of the Automobile.
For example, if the Debtor owns a Car that has a Fair Market Value of $800 and the Balance on the Automobile Loan is $2,000, then the Bankruptcy Attorney can arrange to Redeem the Automobile by obtaining an Order from the Bankruptcy Judge granting the Redemption. The Debtor will then pay the Creditor $800, and obtain ownership of the Automobile free of the Creditor’s Lien. The Balance of the Loan, $1200, is Discharged through the Chapter 7 Bankruptcy.
The Creditor is sometimes recalcitrant in giving the Debtor free Title to the Automobile, so sometimes the Bankruptcy Attorney at our Law Firm needs to prompt the Creditor, sometimes with threat of Sanctions or Actual Sanctions.
In a Chapter 7 Bankruptcy, the Bankruptcy Attorney can also arrange the Surrender of the Automobile, in which case the Collateral is Surrendered in Full Satisfaction of the Debt.
This summarizes the main options available to a Debtor filing Bankruptcy in reference to his Automobile. There are some other more nuanced options, such as Renegotiating the Terms of the Automobile Loan, but such options are generally dependent upon the Creditor agreeing to the Renegotiation. The prior options discussed in this Article generally do not depend upon the Creditor’s Consent. The Creditor may oppose these actions, but that is why one hires a Bankruptcy Attorney.
If you have any questions, or need Legal Assistance, especially in Matters of Bankruptcy and Debt Related Matters, please Call or Contact our Law Office. The Bankruptcy Attorneys, Jay Weller or Will Brumby, will be happy to speak with you personally about whatever issue you may have. Our Toll Free Number is 1-800-407-3328. Weller Legal Group practices not only Bankruptcy Law, but we also offer numerous Non Bankruptcy Programs, such as Foreclosure Defense, Loan Modifications, Credit Counseling, Credit Repair, Debt Settlements, and Debt Workouts. Thank you for your Consideration.