Owing more on your car than it's worth is certainly a frustrating situation, but there are ways out of it. In some cases you may be able to lower the debt owed, lower your monthly payments or redeem the vehicle completely. If you're thinking of contacting a bankruptcy lawyer and you owe more than your car is worth, read on to learn how a bankruptcy may help.
1. A Bankruptcy Lawyer May Be Able to Help Lower Your Interest Rate
The interest rate on a car loan is typically what makes it more expensive than the car is actually worth. When the interest rate is excessively high, it raises both your monthly payments and the amount you'll pay for the vehicle over the course of your loan. A Chapter 13 bankruptcy may be able to reduce your current interest rate to prime plus 2.0%, which can be a significant savings for many.
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2. You May Be Able to Reduce the Debt to Fair Market Value
It's not uncommon for a person to get a car loan with a high interest rate and find that several years down the road they still owe well more than the car is worth. A bankruptcy attorney may be able to assist you in reducing the debt you owe down to fair market value. They'll assess your situation and give you the particulars, but in general if you've owned the vehicle for more than 910 days, a Chapter 13 bankruptcy can reduce the debt to the fair market value and you will owe only what the car is actually worth.
3. Reducing Monthly Payments
In some cases, you may be able to extend the repayment term on your vehicle when filing a Chapter 13 bankruptcy. If this happens, then your monthly payments will be reduced. This isn't always the optimal solution, because unless you lower your interest rate you'll end up paying more for your vehicle in the long run. However, if you want to keep your property but can't make the payments because they're simply too high, than a Chapter 13 could provide some relief.
4. It May Be Possible To Redeem Your Vehicle
For those who owe much more than their car is worth, it may be possible to redeem the vehicle through a Chapter 7 case. Basically, it reduces the debt to the amount of the fair market value of the vehicle. However, instead of continuing to make payments on the vehicle, you'd owe a lump sum payment to the lender. You would then own the car free and clear. This isn't always an option, but a bankruptcy attorney can assess your particular circumstances to determine if it would work for you.
As you can see, there are several different solutions for those who owe more on their car than it's worth. A consultation with a bankruptcy lawyer is the best way to find out what your specific options are and which one will be the best way to move forward.
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