What happens to my car loan interest rate in bankruptcy?

Nothing in a chapter 7, and it usually drops in a chapter 13.

In a chapter 7, if we want to keep the car, we reaffirm the loan with the same interest rate, payments structure, and balance.  If you are behind on the loan, you’d better catch up or work something out with the lender.

In a chapter 13, we cram down the interest rate to 4.25 to 6.5% (generally whatever is the currrent prime rate).  This is because, in a chapter 13, there is a U.S. Supreme Court case called TILL V. SCS CREDIT CORP. (02-1016) 541 U.S. 465 (2004), which allows us to change the interest rate on your behalf.  We simply call it the “Till rate.”  

This means that a chapter 13 allows you to reduce the interest rate you are currently paying on a high interest car loan.

This is not legal advice.  If you need help, go to www.robertspaynelaw.com.


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