How Can I Lower My Car Loan Balance in a Chapter 7 Bankruptcy? Redemption.

15 Aug How Can I Lower My Car Loan Balance in a Chapter 7 Bankruptcy? Redemption.

Your car is worth a whole lot less than you owe on it, and you’re in a Chapter 7 bankruptcy. Is there a way to lower your loan balance?

In a Chapter 13, you may be able to do a cramdown, where you reduce the loan balance to the car’s value, but you can’t do a cramdown in a Chapter 7. Chapter 7 instead allows you to “redeem” the car. What is a redemption and how does it work?

When you redeem your car, you pay a lump sum of cash equal to the retail value of the car. For example, if your car would sell for $10,000 at CarMax, and you owe GMAC $15,000 on it, you’d have to pay GMAC $10,000.

“Great,” most people say. “I’m in bankruptcy because I can’t pay my bills, and you want me to come up with $10,000 I don’t have. Not much of an option!” This is absolutely correct, except for one thing: believe it or not, there are many lenders who are willing to loan you money to redeem your car, even while you’re in the middle of your Chapter 7.

Needless to say, good credit is *not* a requirement for these loans, but a steady job usually is. These loans normally run 4-5 years, and you’ll pay a hefty interest rate–around 25% APR. But even with this, the savings may still be worth it.

Ask your attorney whether redemption would be right for you.

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Brett Weiss, a senior partner at Chung & Press, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his law partner, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute, the Bankruptcy Bar Association of Maryland, and the Civil Justice Network. He has been recognized as a “Super Lawyer” every year since 2007 for Maryland and the District of Columbia, and in 2011 received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, The United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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