Auto Refinance in Ch. 13
Written by Emil Fleysher | November 16, 2020 | Bankruptcy
If you have recently been denied an auto refinance loan because (1) your credit score was too low; or (2) because your car is worth less than the current loan balance; or (3) because your car is too old, you may have another option…
Ch. 13 is a type of bankruptcy that provides for a personal reorganization of your finances. In addition to discharging your unsecured debts (i.e, credit cards, department store cards, medical bills, collections, and resulting judgments) you may be able to refinance secured debts, such as car loans, to lower the balance, lower the interest rate, and extend the payment terms to up to 60 months. The U.S. Bankruptcy Code provides the option for debtors in Ch. 13 bankruptcy to “cram” the loan balance down to the car’s current market value and pay that off, typically at a reduced interest rate, over a 36 or 60-month payment plan, as long as they’ve had the loan for at least 2.5 years.
Many people find themselves applying for an auto/car refinance loan because their interest rate is too high (often as high as 18% or more) or because they need money for something else and they are willing to cash out the equity in their car to get that money. Often, the applicant needs the money to pay certain bills that could be discharged in bankruptcy. However, to get approved for an auto / car refinance loan, the applicant must show (1) a good credit score, typically 700 or better; (2) a substantial amount of equity in the vehicle, meaning that the car is worth several thousand dollars more than the car note’s current balance; and (3) the car is not “old,” meaning it’s 6 years old or younger.
The reality is that most people in a position to be requesting such a loan cannot satisfy all 3 of these requirements. In that case, what are the options? Well, you can either (1) continue paying the loan as is; (2) you can surrender the car and have a repossession on your credit profile, or (3) you can explore your options with a Ch. 13 reorganization.
If you’d like some more information about the Ch. 13 option and how/if it might work for you, please feel free to contact me for a free consultation. I’ll be happy to discuss your situation, explain the pros and cons of a Ch. 13 Bankruptcy Reorganization, and answer any questions you may have. You can use the form below or click on the chat button at the bottom right corner of your screen.