Pay less for your car by filing for Chapter 13 Bankruptcy

You have many rights when filing for Chapter 13 Bankruptcy, but I would like to highlight one that I encourage all of my clients to try and take advantage of. Under Chapter 13 Bankruptcy, when you have a secured debt, you have the right to pay back the value of the collateral over the life of the Chapter 13 Bankruptcy Plan as payment in full!
Allow me to clarify:

SECURED DEBT

A secured debt is one that is attached to a specific piece of property that can be sold if you fail to make the required monthly payments. The best example of a secured debt is a mortgage. A mortgage loan is a debt that is attached to your house; if you do not make the mortgage payments, the bank can take the house. Another common example is a car that has been financed. The car loan is a debt that is attached to your car; if you do not make the car payment, the bank (or financier) can repossess your car.

STANDARD REPAYMENT OF A SECURED DEBT

Under normal circumstances, you are required to pay the secured creditor a monthly payment until the loan is paid off. There is an interest rate which ultimately requires you to pay back more than the original amount borrowed. This type of arrangement makes sense when you own an asset that either holds its value or appreciates. However, if you are holding on to an asset that is depreciating, you always owe more than the asset is worth. Automobiles almost never hold their value and often depreciate rapidly. By the time a standard auto loan is paid off, the car is worth only a fraction of its original value.

REPAYMENT OF A SECURED DEBT UNDER CHAPTER 13 BANKRUPTCY

When a Chapter 13 Bankruptcy Petition is filed it must be accompanied by a Chapter 13 Bankruptcy "Plan" that governs how secured and unsecured creditors are paid back. In this Chapter 13 Bankruptcy Plan you have the option of either paying back the secured debt as you paid it pre-Chapter 13 Bankruptcy, or you can pay just the value of what the property is worth! In the example of the rapidly depreciating car, let us assume that you financed the car for $20,000 and the car was worth the same. Five years later, you file a Chapter 13 Bankruptcy Petition and the car is worth $5,000 but you still owe $15,000 to the financier. You are allowed to pay $5,000 through your Chapter 13 Bankruptcy Plan for the car and you own it at the end of the plan period.

This is just one of the many rights you have when filing for Chapter 13 Bankruptcy.