Lower the Interest Rate on Your Car Loan in Chapter 13

21 Aug 2010

As a lawyer who limits his practice to representing clients who seek Chapter 7 and Chapter 13 bankruptcy protection in the Orlando area, it is not at all uncommon for me to see clients with car loans that carry a very high interest rate.  This stems from a number of factors, but usually my clients are carrying a high debt to income ratio when they apply for the loan, or have some negative credit history that results in them not qualifying for a very good rate of interest on the car loan.  How filng bankruptcy can effect your interest rate

To fix the high interest rate on a car loan problem, and to handle other debt issues my clients may have (such as high credit card debt, medical bills, or home loans) sometimes I will advise my clients to file for Chapter 13 Bankruptcy.

In a 2004 case decided by the U.S. Supreme Court, it was determined that the appropriate interest rate to use when adjusting a car loan in bankruptcy is the prime interest rateplus some additional risk points.  The Orlando Bankruptcy judges have decided to add 2 points to the prime rate, and this is known as the Till rate, taking its name from the Supreme Court case with the above link.

So, for example, today the prime rate is 3.25%.  If you filed a Chapter 13 Bankruptcy case in Orlando, and had a car loan with a 21% interest rate, your Orlando bankruptcy lawyer could modify that loan in your Chapter 13 payment plan to change the interest rate to the current Till rate of 5.25%.  Paying the new loan over the life of a 60 month Chapter 13 plan could result in huge savings!

Check out this car loan calculator on bankrate.com.  As aside note, this website is an extremely useful resource for all things financial.  Book mark it now.  Using this calculator, you can plug in the balance of your current car loan, the interest rate on your current loan, and the 5.25% Till rate currently applied to vehicle loans in the Orlando Bankruptcy Court.  For the term of the loan, choose 60 months as a default, however, the actual term of the payment in your Chapter 13 bankruptcy case can vary from 36 to 60 months and is something on which your Orlando bankruptcy lawyer can advise you.

Lowering the interest rate on a car loan is just one of the many forms of relief an individual who files Chapter 13 bankruptcy in Orlando can receive.  If you’d like to learn more about how your lawyer can obtain the maximum amount of protection for you against your creditors, click here.

Photo Courtesy:  Flickr

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K. Hunter Goff

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