It is difficult to avoid car payments. A drop in the value of a used car is inevitable and thus, many people, driving financed vehicles, owe more to the lender than the worth of the asset. However, you can pay the actual worth of the vehicle rather than the amount you owe on it.
According to 11 USC 722, a bankruptcy debtor is allowed to pay the secured portion of the car debt for satisfying the lien. A “Security” (physical asset) has to be given for a loan which can be exchangeable for satisfying a lien. Typically, a home or a car is used as security. In the case of no-payment on a lien, the lender can take away the security to make up for the lien amount. The extra value is returned to the borrower. When a car or a house is sold for a lesser value than the lien amount, it is known as a “deficiency”. A lender may sue the borrower for such deficiencies (unsecured debts).
Under 11 USC 722, the creditor’s single claim is bifurcated into two claims by the court – secured (equal to the actual market value of the car) and unsecured (the remaining money). In this manner, the debtor can keep the vehicle by paying the secured portion and can get a discharge on the unsecured portion. The payment of the secured debt is relatively easy through a Chapter 13 repayment plan, typically over the period of 5 years, whereas, in a Chapter 7 bankruptcy, immediate payment of the secured debt is required which is mostly impossible for bankrupt people.
In Chapter 7, there are usually three options of redemption for the filers:
- Save a sufficient amount of cash using exemptions for paying the redemption.
- Take help from a relative or a friend to pay off the redemption.
- Seek third-party
There are many businesses specializing in financing payoffs under 11 USC 722, thus, finding third-party financing is not difficult for bankruptcy filers. However, the rates of interest are high (around 28%). But such transactions still make economic sense because the debtor is not obliged to pay the unsecured part of the debt anymore.
Consult an experienced bankruptcy attorney to know more about whether taking a third party loan or electing yourself for 11 USC 722 will be beneficial for you or not. Contact the Recovery Law Group at www.recoverylawgroup.com or call on 888-297-6203.