Most people have a car loan when they file bankruptcy, so the old and new bankruptcy laws address loans on vehicles. Unfortunately, the new laws are tougher on debtors in terms of how much you must repay on your outstanding loan. This forces the debtor to pay the full amount for loans that even have excessive interest rates.
Under the old bankruptcy laws, debtors only had to repay the value of the vehicle they owned. That meant you only had to pay back the current resale value and not the retail value of the vehicle. Under the new law, if you have had a loan placed on the car within the last 3 years, you will have to pay the full amount of the loan.
This is one of the most significant changes in the new bankruptcy law. Under the old law, the courts would have determined the real value of the car and then figured up what you had paid to date and what you would owe in payments to reimburse to that value. Under the new law, you have to pay the full amount or lose the car.
This means that if you took out a loan at a high interest rate, you will still have to pay back the full loan. In effect, you are paying 2 or 3 times what the car is worth. This law change made it most difficult on those who had to accept less than desirable car loans in order to obtain a vehicle. Of course, under a chapter 7, you can surrender the car if you simply cannot afford to make the payments. But once again, that makes it difficult to recover from a bankruptcy when you have no car to drive. Under a chapter 13, the car loan payment is included in your repayment plan.
Speaking of bankruptcy car loans, you will probably be inundated with car loan offers once your bankruptcy is discharged. You won’t ask for the information, but plenty will show up in your mailbox. Auto dealers know many people surrender their cars and need a vehicle, and so they track bankruptcy court records to find out who has filed. The letters claim to want to help you rebuild your credit, but you must be very careful. Odds are the car loan will be charged a premium interest rate because of your credit rating.
The good news is that if you can afford to buy a car, and don’t have one, the bankruptcy will not stop you from finding interested lenders. It’s important to remember though that you don’t want to start creating new debt that you cannot afford to pay. You cannot file another chapter 7 for 8 years or a chapter 13 for 4 years. New creditors see themselves as first in line again in terms of collection status.
Sometimes it is possible to seek a bankruptcy alternative through credit counseling. It is feasible to get deeply in a debt, but be able to avoid bankruptcy when certain conditions exist. First and foremost, if you earn enough income to pay your current monthly expenses and your debt payments, but have fallen behind because of high interest rates or a one-time financial emergency, then it might be possible to avoid bankruptcy. Also, if your secured debt such as your mortgage and car payments are current and it is the unsecured debt wreaking financial havoc, then credit counseling may be a good choice. There are plenty of other good reasons why you might consider seeking credit counseling.
You can find many different types of credit counseling agencies, nonprofits and for-profit businesses. You should be very careful about the company or agency you choose, because some of them charge high fees. That means a significant amount your monthly payment would go to pay fees and not your debt. The best place to start when looking for a reliable and experienced credit counselor is with a bankruptcy attorney.
You should meet with the bankruptcy attorney in order to determine if credit counseling is even the path you should pursue. Credit counseling is usually only suggested instead of bankruptcy when two conditions can be met. First, you have to be able to budget your money and adhere to a repayment plan. Second, you only need to get interest rates lowered on unsecured and maybe some of the secured debt in order to get your payments lowered.
Credit counseling involves listing all of your income and debts. You are assigned a counselor who then contacts each of your debtors. In most cases, high interest rates on credit cards can be reduced and the credit card companies agree to accept lower payments. In some cases, even secured debt payments can be lowered, because a company would rather not repossess personal property if at all possible. Normally though, only unsecured debt is included in the repayment plan. Once the counselor has obtained the new payment amounts, a total monthly sum payment is calculated which includes a fee. You then pay that one amount to the credit counseling agency which distributes the payments to the credit card companies or other debtors.
For many people, credit counseling offers a bankruptcy alternative. You are able to avoid filing a bankruptcy that remains on your credit records for 10 years. The credit management services are often able to negotiate lower interest rates so you can restore your financial health. It's always best to avoid bankruptcy if possible, but when you need to actually reduce your debt, rather than just the payments, then bankruptcy is the best solution.
A bankruptcy attorney can review your financial status and advise you as to the best course of action.
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