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'My Car is Worth Less than What is Owed'

Often clients will have an existing vehicle loan whereby the fair market value of the car is worth way less than what is owed on the remaining loan balance. This becomes problematic for the client when they attempt to refinance the loan for a better deal, or they attempt to sell it. Neither option is viable, since the vehicle is strictly speaking, considered financially underwater.

Of course, there is always the very bad financial option of rolling the negative equity into another vehicle loan purchase. However, this option only serves to perpetuate the problem more by submerging your latest vehicle loan even deeper into the 'worth less than what is owed' cycle, even before you drive it off the dealership car lot.

Here is where a bankruptcy attorney can help. The U.S. Bankruptcy code was written to allow an honest debtor to receive a fresh start from dischargeable debt, and a fresh start would include the type of vehicle loan that I described above. If your desire is to walk away from the vehicle loan and surrender the vehicle back to the creditor, that would be an option. If you desire to retain the vehicle, then there are also options to make the vehicle loan a better financial situation for you and your budget.

One option is to cram the balance owed on the vehicle loan down to the fair market value of the particular vehicle you have. This would be used in a chapter 13 case, whereby you are essentially rewriting the vehicle loan at a new principle balance and amortizing that over the chapter plan term length. You also have the ability to cram the interest rate charged on the vehicle loan down to an interest rate slightly above prime rate. A bankruptcy attorney would be able to properly construct a chapter 13 plan to accomplish this provided that you have had the vehicle loan for at least one day longer than 2 1/2 years. However, the ability to cram a high interest rate on a vehicle loan down to slightly above prime rate is always available in a chapter 13 case, no matter how long you have had the vehicle loan.

Another option is what is known as a 722 redemption, which is used in a chapter 7 case, whereby you redeem the vehicle by paying the fair market retail value of the car in a lump sum payment to the creditor. This is accomplished by using financing businesses that specialize in 722 redemption loans. However, the interest rate charged on these particular loans can be high, but again you are paying the current fair market value of the vehicle as opposed to paying the outstanding loan balance if you were to just merely reaffirm that debt.

If you have a vehicle loan that has a high interest rate or worth less than what is owed, or if you are behind on your car payments and you are afraid that your vehicle maybe repossessed call my office, I can help. Call 989-891-9780 for your free initial bankruptcy consultation or schedule an appointment on my website at I also have Zoom video conferencing available as well as Docusign to accommodate our client's scheduling needs.



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