A common problem Las Vegas residents run into is that their auto loans are way higher than the value of their vehicles. This often comes about because the bank, or in some cases the dealership when it acts as a lender, over-financed the vehicle.
These are regrettable situations, but unlike an underwater mortgage, the bankruptcy code can help people lower their auto payments in a way that’s much more helpful than they can with the house.
There are 2 ways Las Vegas bankruptcy can help reduce your auto loan payments. Both depend on which chapters of the bankruptcy code you file.
(1) Redemption in Chapter 7. Most people who file bankruptcy use Chapter 7. It’s considered the straight liquidation chapter. Most people use it to discharge excess credit card debt and other unsecured debts, so it’s quite a powerful tool.
Chapter 7 does allow car owners one option for reducing their loan payments: redemption. This means paying the lender the market value of the vehicle in one lump-sum payment. On the one hand, many people may have difficulty gathering the money together for the lump sum payment, but on the other hand, we’re only talking about the market value of the vehicle. If the car is over-financed with high payments as it is, then you’ll end up paying less for it overall.
A side benefit of Chapter 7 is that if you just want to lower your payments rather than file bankruptcy, you can still use bankruptcy as a negotiating tool by asking the lender to renegotiate the auto loan. If their choice is between a small lump-sum payment and a smaller monthly payment, they’ll choose the latter.
(2) Cramdown in Chapter 13. We’ve written about this in the past, but the process is straightforward. If you bought the car within 910 days (about two and a half years), then you must pay back the full balance of the loan according to the payment plan you ultimately come up with.
This is usually not what car owners want. If the car is more than 910 days old, the bankruptcy court will adjust the monthly payment based on the car’s present value. This process is called a “cramdown” because the bankruptcy court is forcing down the total value of the loan and the interest rate. As cars do not appreciate in value, cramming down a vehicle in Chapter 13 succeeds in reducing monthly auto payments. Again, the threat of Chapter 13 should induce lenders to renegotiate, if that’s what you want.
A burdensome auto loan is not something you have to live with. For those in Las Vegas who want to know what their legal options are, an experienced Las Vegas bankruptcy attorney can help.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 today!