In the last post, Auto Loans in Chapter 7 Bankruptcy Pt. I, we talked about redeeming your vehicle. Redeeming your vehicle is basically just paying the fair market value of your vehicle.
However, we understand that even if your car is only worth $500, it could create a hardship to come up with the full fair market value of your vehicle in one lump sum.
In this post we offer some suggestions on how to fund a redemption so you can utilize all of the advantages a Chapter 7 bankruptcy can offer.
Since the payment is usually due in full approximately two to three months after you have filed your bankruptcy, redemptions work particularly well around tax season.
For example, if your vehicle’s fair market value is $4,000 and you are expecting a $4,000 tax return that was protected in the bankruptcy, you could use that money to pay off your vehicle loan.
Even if you still owed $10,000, $12,000, or even $20,000 on the loan; as long as the vehicle is truly worth $4,000. Upon payment, your car would be owned outright and you would not be responsible for any remaining balance.
What if you don’t have a lump sum of money to redeem your vehicle?
There are some lenders out there willing to extend the debtor a redemption loan, which would be used to pay off the original creditor. The debtor would then be responsible for paying off the balance of the redemption loan to the new lender.
These loans typically come at a very high interest rate so we only recommend this as a last resort option. However, the lender we work with will not approve your loan application unless it will lower the overall amount you pay for the car.
Check out Part III of this blog post to learn about the other options for your vehicle in bankruptcy.
Or, just contact our office today so we can discuss your unique situation for your free initial consultation to learn if bankruptcy will help you get the fresh start you deserve.