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Can I Lower My Car Payment in Bankruptcy?

If you’re having trouble paying your monthly bills—especially that steep car loan— you might be wondering if filing for bankruptcy will lower your existing car payment. It depends on which type of bankruptcy you file, but bankruptcy could potentially lower your car payment.

Here are basic descriptions of the two types of bankruptcy that you can file:

A Chapter 7 bankruptcy, or “liquidation” bankruptcy, will discharge most of your unsecured debt. A trustee will attempt to sell any significant property to pay your creditors.

A Chapter 13 bankruptcy, or “wage earners” bankruptcy, will reorganize your debts so that you can repay some or all of your debt over a set period of time.

When you file for Chapter 7, your car loan will not be discharged because it is not an unsecured debt, but rather a secured debt. In this type of bankruptcy filing, your secured creditors—which include the holders of your car loan— will have you sign a reaffirmation agreement. This is an agreement between the creditor and the debtor that waives the discharge of debt in a pending bankruptcy proceeding. You must sign this agreement in order to retain your vehicle. You will be required to maintain your monthly payments. If you default, the creditor has the right to repossess your car.

There is one possibility through Chapter 7 that could decrease what you owe on your car, and that is you may take advantage of your right to redeem your car. When you redeem your vehicle, you pay an amount equal to its replacement value. This is often much lower than the amount that remains on your loan. The hitch is that you will need to pay this figure in a lump sum, and few people filing for bankruptcy have the cash to do so.

Your best chance of reducing your car payment is through Chapter 13 bankruptcy. In Chapter 13, your car loan will become part of your bankruptcy plan which will be paid by your trustee. Your car payment could remain the same, but you can reduce a high interest rate (typically down to ~4%), and you can even reduce the principal balance of a car loan if (a) the value of the vehicle is less than the balance owed and (b) the vehicle was purchased at least 910 days prior to filing your Chapter 13. This is known as a “cram down.” In a cram down, if the balance of your loan is more than your car is worth, then you can pay back the balance based on the current value rather than the contracted loan balance. This could decrease the amount you owe considerably and thereby lower your payment.

There are some variables to consider, but filing for bankruptcy often a good option if you’re in need of lowering your monthly car payment.

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court says
on March 29, 2016 at 4:40 PM, updated March 30, 2016 at 12:23 PM
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LANSING, MI – If a towing ball on your vehicle – or a bike rack or a trailer hitch or anything else – obstructs a police officer's view of your license plate, the cop can pull you over, the Michigan Supreme Court has ruled.

In precedent-setting opinion in a Muskegon County case, the high court unanimously overturned a Michigan Court of Appeals ruling that suppressed evidence seized from a truck pulled over after police couldn't read all of its license because of a tow ball in the way.

The supreme court reinstated evidence in the felony drug and gun case against Charles Almando-Maurice Dunbar. The 7-0 opinion, written by Justice Stephen J. Markman, was filed Tuesday, March 29.

Markman concluded that the Michigan Vehicle Code requires vehicle owners to attach their registration plate in a place where it can be seen without obstruction.

It's not enough, the court concluded, to keep the plate itself legible and free of material that obscures it. That reversed the opinion of the appeals court, whose majority had concluded that Dunbar shouldn't have been pulled over because his plate was clean and legible.

The high court's decision reinstated the original ruling of the trial judge, Muskegon County 14th Circuit Judge Timothy G. Hicks, allowing evidence seized after the stop to be used at Dunbar's trial.

Muskegon County sheriff's deputies pulled over Charles Almando-Maurice Dunbar's truck about 1 a.m. Oct. 12, 2012, on Hackley Avenue in Muskegon Heights. Once he was stopped, deputies said they smelled ma*****na, leading to a search that uncovered drugs and a gun.

As a result of the traffic stop and subsequent search, Dunbar was charged with possession of between 50 and 450 grams of co***ne, carrying a concealed weapon, second-offense ma*****na possession and felony firearm, as a fourth-time habitual offender.

In the initial court case, DunLL YOULEGSLLYA OVER motion to suppress the evidence deputies seized, arguing that the traffic stop violated his client's Fourth Amendment rights.

Hicks dismissed the attorney's motion. But the Michigan Court of Appeals in September 2014 overturned the lower court's ruling in a 2-1 decision.

The appellate court's published opinion, which if upheld would have set precedent for future cases, essentially said police could not pull over a vehicle merely because a towing ball obstructs their view of a license plate.

The new supreme court ruling upholds traditional police practice.

According to the appeals-court decision, now overturned, Dunbar was violating no traffic laws before deputies pulled him over. The officers stopped him because a towing ball attached to the back of the truck -- but not actually touching the license plate -- kept them from being able to make out one of the numbers on the plate. It's illegal to drive with a partially obscured license plate.

At the time of the September 2014 ruling, attorneys for both sides said it would affect police conduct statewide unless it was overturned or the wording of the law was changed.

Oakes at that time called the now-reversed ruling a victory against police "profiling" of drivers like Dunbar, who is African-American, leading to unwarranted traffic stops in hopes of finding evidence of drugs.

Senior Assistant Prosecutor Charles Justian at the time called the 2-1 ruling legally flawed. He said the majority opinion incorrectly failed to address the issue of whether excluding the evidence was necessary to deter police misconduct.

In the end, the state supreme court didn't consider either issue. They restricted attorneys' arguments to the issue of whether Dunbar's license plate violated traffic law "where it was obstructing by a towing ball."

In view of the statewide impact of the issue, the high court had invited the Prosecuting Attorneys Association of Michigan and the Criminal Defense Attorneys of Michigan to file briefs in the case.

READ THE OPINION HERE.

John S. Hausman is a reporter for MLive. Email him at [email protected] and follow him on Twitter.