Many people have a hard time meeting all their debt payments. On the surface, things may look okay. Many people own beautiful homes, vehicles, and other assets. However, many of these people can barely manage to pay their debts, which are mainly their credit card debts. If you're struggling to repay your debts, filing for bankruptcy could lead to lower loan interest rates. With lower interest rates, the monthly loan installment will also be lower, making it easy for you to meet the loan obligations. We at the Los Angeles Bankruptcy Attorney can guide you on the bankruptcy process and how to reduce your interest rate.
Bankruptcy and Interest Rates
When most people struggle to pay their debts, the first thought is usually to call the creditor and request them to lower the loan interest rates. However, this tactic rarely works. Even if a creditor agrees to reduce the interest rate, it will result in a much more extended repayment period. Perhaps with your income, you can't qualify for chapter 7 bankruptcy. You should not give up because you could still qualify for other bankruptcy options.
You may choose to file for chapter 13 bankruptcy instead of chapter 7 bankruptcy. Under chapter 13 bankruptcy, creditors will have no option but to accept the loan repayment you can afford.
California Bankruptcy Laws
It can be frustrating to be in a financial crisis and still have to bear your debt burden. You can clear most of your debts and rise above your financial crisis by filing for bankruptcy. If you are planning to file for bankruptcy in California, you could file Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy will be ideal if you don't have adequate assets or the ability to repay your debts. After filing for Chapter 7 bankruptcy, the mediator will liquidate your non-exempt assets and use them to pay your creditors.
If you have some assets and the ability to repay some of your debts, consider filing for Chapter 13 bankruptcy. Chapter 13 bankruptcy will be ideal if you're falling behind in your payments but still making some progress. Perhaps you're unable to keep up with the creditor's demands. Maybe you feel that if only the interest rates or the installment were lower, you would manage to make the payments. Chapter 13 bankruptcy will lead to the reorganization of your debt. You'll be able to repay part of the full loan through a repayment plan.
Compared to Chapter 7 bankruptcy, Chapter 13, bankruptcy is advantageous because you'll get to keep your property. Chapter 13 bankruptcy does not involve the liquidation of your property. You'll still be able to keep your car, career, and your house. When a mediator sets up a Chapter 13 debt payment plan, he or she keeps in mind the debtor's needs. This ensures that the debtor will be able to keep up with the repayment plan after debt reorganization. The alternative name for Chapter 13 bankruptcy is the wage earner's plan. This is because Chapter 13 bankruptcy is ideal for regular income earners.
After filing for bankruptcy under Chapter 13, you’ll pay a certain amount of money to your trustee every month. The trustee will then pay the money to your creditors. During the bankruptcy period, your creditors will not contact you or bother you in any way. In most cases, the repayment plan under Chapter 13 bankruptcy ranges between three and five years.
Interest Rates Under Chapter 13 Bankruptcy
Even after the reorganization of your debt upon filing for Chapter 13 bankruptcy, the debt will continue to accrue interest. However, after filing for bankruptcy, the interest paid to creditors is likely to be lower.
After filing for Chapter 13 bankruptcy, you’re able to consolidate all your debts into one debt. You can combine your credit card debt with other debts and make a common payment. The court will regulate the interest rates for the consolidated debt. Therefore, if some of your previous loans had higher interest rates, you’ll be able to enjoy much lower interest rates. ]
Some unsecured debts may not accrue interest when you file for Chapter 13 bankruptcy. For instance, if you have some outstanding medical bills, they will not accrue interest after filing for bankruptcy. In the case of a mortgage loan, you may offset part of the mortgage, and the court will set a lower rate for the remaining mortgage amount.
In some instances, you may enjoy reduced interest rates on secured debts as well. For instance, the prime interest rate for vehicle loans is 5.5%. According to the law, a creditor may charge 1 to 3% additional interest above the prime rate. Therefore, the maximum interest rate for a car loan should not exceed 8.5%. If you have a car loan that attracts a higher interest rate (more than 8.5%), filing for Chapter 13 bankruptcy can help you make savings on interest rates.
However, it’s important to note that the lower interest rates will only apply during the bankruptcy period. After the bankruptcy period is over, you’ll have to negotiate a new interest rate with the creditor for the remaining loan amount. Your Los Angeles bankruptcy attorney can evaluate your situation and guide you on the best way forward.
Your Property and Chapter 13 Bankruptcy
Other than reducing the interest rates, filing for Chapter 13 bankruptcy could also reduce your loan’s principal amount. When you file for bankruptcy under Chapter 13, the court will take some time to evaluate your property. If your property is making profits, the bankruptcy court may allow you to keep the property. However, if the property is not yielding any profits, the bankruptcy court may not be willing to keep it. Instead, your creditor may sell off the property to pay part of your loan.
Selling the Property
You could lower the loan owed to creditors by disposing of your property and using the proceeds to pay part of the loan. This process is known as cram-down. This procedure is ideal if the loan outstanding is more than the value of the property. After reducing the loan’s principal amount, you'll pay the remaining loan amount in full within the bankruptcy period. If the remaining loan amount has high-interest rates, you may negotiate with the bankruptcy court for lower interest rates. The court may require you to have an extra income source that you can use to pay the creditors during the bankruptcy period. After implementing a cram-down, the outstanding loan amount will be an unsecured loan that will form part of your repayment plan.
Lien on Your Property
At times, the creditor may attach a lien on your property, especially if you've attached your mortgage. However, lien stripping may occur if the outstanding credit is higher than the property value. After lien stripping, payment of the primary mortgage will be a priority.
Chapter 13, bankruptcy is ideal if you own an investment property. For instance, if you have rental properties that bring in a certain amount of income every month, your attorney may negotiate a repayment plan that will allow you to keep the property. However, the court may not be willing to keep the property if it keeps losing income. At times, the court may allow you to keep a property that does not generate income. However, the court may not allow you to perform maintenance and repairs on the property.
The bankruptcy court has the mandate to decide whether you should continue holding on to a property or not. However, your bankruptcy attorney can convince the court that your property will benefit the lenders if it allows you to retain it.
Filing for Chapter 13 Bankruptcy
Filing for Chapter 13 bankruptcy is the best way out if you are:
- Facing removal from your home
- About to lose your vehicle
- Tired of battles with debt collectors
Chapter 13 bankruptcy can help you to resolve your debt situation. It allows you to consolidate all your debts to develop a manageable debt repayment plan. When getting started with chapter 13 bankruptcy, you have to pay administrative and filing fees. You also should create a list of all your debtors and the amount of money owed to each debtor. Other necessary information while filing for bankruptcy include a list of all your properties and your tax information.
You'll have to prove in court that you haven't had a previous bankruptcy petition dismissed in the last six months for failing to show up in court. You must also undergo credit counseling within six months of filing for bankruptcy.
After you file for Chapter 13 bankruptcy, your bankruptcy attorney will help you develop a repayment plan to be presented in court for approval. After the presentation of the repayment plan in court, the lender may oppose the plan. However, the court has the mandate to approve the repayment plan despite the opposition.
The court may or may not approve of your repayment plan. Having a qualified bankruptcy attorney helps you develop a repayment plan that will increase the plan's chances of approval. If the court approves your repayment plan, you'll no longer deal with creditors directly. Instead, you will work with a mediator who will act as a link between you and the creditors.
If the court approves the repayment plan and the parties involved agree on the plan, there should be no late repayment of the loan installments. However, you may choose to increase your monthly installments to help you clear the loan early. In some instances, something may come up and prevent you from honoring your repayment plan.
In this case, you can work hand-in-hand with your mediator to develop a modified plan. However, complete failure to service the loan under the new repayment plan will lead to the bankruptcy's dismissal. You should also note that filing for Chapter 13 bankruptcy will not relieve you from paying certain debts. Some of the debts that you have to continue paying even after filing for bankruptcy are:
- DUI liabilities
- Education loans
- Child support
Chapter 7 Bankruptcy and Car Loan Interest Rates
Filing for Chapter 7 bankruptcy can help you to reduce the interest rate on your vehicle loan. After filing for Chapter 7 bankruptcy, all other payment plans are canceled. In most cases, Chapter 7, bankruptcy entails selling all your non-exempt properties to pay your outstanding loans. However, you can still retain your vehicle as you continue to pay the outstanding vehicle loan.
To retain your vehicle in Chapter 7 bankruptcy, you would have to enter a new loan repayment agreement. You can negotiate with your creditor for an amendment of the original loan terms for you to be able to pay lower interest rates. The new agreement you have to enter to retain your vehicle is known as a reaffirmation agreement.
If the outstanding loan amount is more than your vehicle's value, you'll have to protect your vehicle equity from retaining it. At times, you may only be able to retain part of the vehicle equity. In this case, the trustee handling your bankruptcy case may sell the vehicle but refund the secured equity to you. The remaining proceeds will be paid to your creditors.
Even if your car equity is safe, you still have to liaise with the lenders to inform them that you plan to renegotiate the loan terms. Under Chapter 7 bankruptcy, you'll have to file a statement of individual filing. While filling the statement, you have to outline whether you intend to surrender the vehicle to the creditor, reaffirm, or pay a lump sum of the vehicle's entire real value.
After you fill the statement, the statement will be submitted in court, and the lender will know about your intention. The lender may issue you with a reaffirmation informing you that you can enter a new repayment agreement and keep the vehicle. Signing the reaffirmation does not mean that the lender has to alter the initial terms of the loan. The creditor may retain the initial terms of the loan even after you sign a reaffirmation.
In case your vehicle gets into an accident before you clear the loan, you’ll have to file a claim and pay the loan with the proceeds of the accident compensation. If the claim’s proceeds are not enough to clear the loan, you’ll have to clear the loan with your own money. However, if you keep the car and continue paying the loan, the lender can't file a lawsuit against you even if the car accident compensation does not clear the loan.
Getting a reaffirmation from the creditor isn’t a guarantee of the reduction of the interest rates. The creditor may retain the initial interest rates even after the reaffirmation agreement. To access lower fees after signing the reaffirmation agreement, you’ll have to negotiate with the creditor. Your bankruptcy attorney can assist you in the negotiation process.
Bankruptcy and Interest Rates on Future Loans
The applicable interest rates for loans depend on your credit score. Therefore, if you have a bad credit score after bankruptcy, you'll have difficulty accessing a loan at a low rate. Your debt levels will also affect your interest rates. You might only qualify for loans with high-interest rates if your debt to income ratio is too high.
However, filing for bankruptcy should not mark the beginning of financial ruin. Instead, it could be a great start to organize your finances and rebuild your credit score. To be able to reduce your interest rates after filing for bankruptcy, you should:
- Make loan payments on time.
- Rebuild your credit score through secured credit card
Paying your loan on time will go a long way in reducing your interest rates irrespective of whether you file for chapter 7 or chapter 13 bankruptcy. After filing for bankruptcy, you need to prove to lenders that you are starting to re-establish your finances. There is no better way to prove that you're getting back on track than making timely loan payments. You will be able to qualify for lower interest rates after proving that you are back on track financially.
You can also rebuild your credit score through a secured credit card. You could make cash deposits to card issues in exchange for a secured credit card that you can use daily. Based on your deposit, the card issuer will increase your credit card limit. By increasing your deposits, you'll make more payments using your card, which will eventually build your credit score. After improving your credit score, you'll be able to access loans at low-interest rates.
Find a Los Angeles Bankruptcy Attorney Near Me
You don't have to struggle with loan payments; there’s a way out. Filing for either Chapter 7 or Chapter 13 bankruptcy can lower your interest rates on your existing loans. With lower loan interest rates, you'll enjoy paying lower, manageable interest rates. Even after filing for bankruptcy, you can rebuild your credit score and qualify for loans at a low-interest rate. The Los Angeles Bankruptcy Attorney can guide you through bankruptcy laws and explain how to reduce your interest rates. Contact us at 424-285-5525 and speak to one of our attorneys today.