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Dealing with a car loan in a Chapter 13 bankruptcy

While there are many issues that will come to the top of the list of concerns for Texans seeking debt relief through a Chapter 13 bankruptcy, there are also other factors that must be considered. One is what will happen to a car loan that still has payments due while the bankruptcy is in process. While it might be a secondary problem once the Chapter 13 gets underway, it must be dealt with at some point.

People who have a car will, more times than not, need their car. If they lose their vehicle as part of the process, that can make it all the more difficult to hold a job and function to get into a better financial position. It needs to be remembered that with bankruptcy, it is possible to retain one's car. With Chapter 13, a portion of the debts can be paid through restructuring of what is owed. Part of that could include the car loan. It is important to understand that the age of the car is key in how much must be repaid for the loan.

A loan that is less than 910 days old will have to be paid in full. It is possible, however, that the interest rate of the vehicle loan might be lowered under the Chapter 13 bankruptcy process. If that happens, then the payments might also reduce. If it is an older car loan that is more than 910 days old, the person would receive a prorated amount to pay depending on what the vehicle is worth. The current market value of the car would be the basis of the payment plan.

If a person is currently behind on the payments for the car, it might be possible to alter the agreement with the lender to make the payments via the Chapter 13 agreement. Keeping one's care is a common worry with a Chapter 13 bankruptcy. Speaking to an attorney to avoid repossession and understand the basics of filing for Chapter 13 is a smart decision before moving forward with the strategy.

Source: bankrate.com, "Keeping your auto: car loans in bankruptcy," Margarette Burnette, accessed on Jan. 19, 2016

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