Can I Lower My Car Payment in Chapter 7 Bankruptcy? - Philadelphia Bankruptcy Attorney (2024)

FAQs

Can I Lower My Car Payment in Chapter 7 Bankruptcy? - Philadelphia Bankruptcy Attorney? ›

You can lower your car payment in Chapter 7 bankruptcy by redeeming your car loan.

There is one possibility through Chapter 7 that could decrease what you owe on your car, and that is you may take advantage of your right to redeem your car. When you redeem your vehicle, you pay an amount equal to its replacement value. This is often much lower than the amount that remains on your loan.

If you are behind on your car payments, the lender has the right to repossess the vehicle. However, when you file either Chapter 7 or Chapter 13 bankruptcy, the court issues an automatic stay. This freezes all repossessions, giving you time to catch up on missed payments.

Can I keep my house or car if I file for Chapter 7 bankruptcy? In most cases, the answer is yes. In Chapter 7 cases, it depends largely on how much equity you have in your home or vehicle. (Equity is the difference between what you owe on an item and what it is worth.)

Car Loan Options After Filing for Chapter 7 Bankruptcy

Some car lenders will let you keep the car after your Chapter 7 bankruptcy without entering into a reaffirmation agreement if you continue making the payment.

Cramdowns are available in Chapter 13 bankruptcy only—you cannot cram down a car loan in Chapter 7 bankruptcy.

Bankruptcy isn't always the best way to get out of your car loan. Generally, you won't be able to both, get rid of the loan and keep your car if you still owe on your car loan. However, there are exceptions to this rule that may allow you to keep your car if your equity in the car is below a certain exemption amount.

If you file for Chapter 7 bankruptcy, refer to your state bankruptcy statutes for exemption rules. If your state allows an exemption for all of a car's equity, or your state's exemptions cover you fully, you can keep the vehicle as long as you're current on loan payments or if you own the car outright.

Refinancing your car during Chapter 7 bankruptcy

Your best option for “refinancing” your car loan to get better payment terms while your Chapter 7 bankruptcy is pending is to do either a reaffirmation of your current loan or redeeming the car with a new loan.

Typically, a bankruptcy lawyer can help you write and negotiate a reaffirmation agreement. Once you have a written agreement, there may be a reaffirmation hearing where the judge reviews the agreement.

How many times can you file Chapter 7 in PA? ›

There is no general restriction on how many times you can file for bankruptcy. However, statutory waiting periods apply if the debtor received a discharge in the prior case. These waiting periods depend on the Chapters filed, and there are some exceptions.

In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for giving up your property, except for exempt property which the law allows you to keep.

As a result, cars are rarely a problem in Chapter 7 bankruptcy. As long as people are making their payments to the bank, they can usually keep their cars. As long as the cars are of limited value, it is possible to take multiple vehicles through Chapter 7 bankruptcy.

What Should I Do If My Car Was Never Repossessed After Bankruptcy? If the bank refuses to repossess the car after you give the lender the proper notice of your wish to surrender the vehicle and make the car available, you'll likely be able to keep it.

Obtaining Court Permission to Dismiss in Chapter 7

That's not to say that you'll never receive permission to dismiss your case—it can happen. However, in most cases, the court will deny your request for dismissal unless you have a compelling reason and can show that you can pay your creditors outside of bankruptcy.

Lenders and banks absolutely want you to reaffirm your loans when you file bankruptcy. Why? Because if you default on your car loan 6 months or a year after your case is over, then they can repossess your car, and then sue you for the balance on the loan.

Again, there's no minimum or maximum amount of unsecured debt required to file Chapter 7 bankruptcy. In fact, your amount of debt doesn't affect your eligibility at all. You can file as long as you pass the means test. One thing that does matter is when you incurred your unsecured debt.

For instance, Chapter 7 bankruptcy covers or "discharges" credit card balances, medical bills, past-due rent payments, payday loans, overdue cellphone and utility bills, car loan balances, and even home mortgages in as little as four months.

The remaining portion of the debt, which is $6,000, is treated as unsecured. In chapter 13, your vehicle loan could be adjusted so your monthly payment is calculated only on the secured part of the loan. This could significantly reduce the amount of your monthly loan payment.