Does Filing for Bankruptcy Lower My House or Car Payment?
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Depending on which bankruptcy you file, bankruptcy may lower your monthly payments for a car but will not lower your payments for a house. A Chapter 7 bankruptcy will not lower your monthly payments but you will be wiping out all of your other debts and will no longer be charged interest and late fees on those payments. Therefore, you free up more money each month which helps your ability to make your car or house payments each month. If you still feel like there is no way that you would be able to afford to make the payment each month, then you can surrender your vehicle or house and wipe out any mortgage or car loan that is left over.
In a Chapter 7 bankruptcy, once you file, your secured creditors will want you to sign what’s known as a reaffirmation agreement. A reaffirmation agreement tells that creditor that you will continue to make your payments as contracted. In a Chapter 7 bankruptcy, you are not required to sign a reaffirmation agreement on your home, but you must sign one in order to retain your vehicle. In either case, you must continue to make your monthly payments, and upon default, they have the right to foreclose or repossess the property. Now, there are some cases in which you can redeem your car instead of reaffirming it, but you will need to discuss this with your attorney.
In a Chapter 13 bankruptcy, the trustee will be making your house and vehicle payment through the bankruptcy plan. As with a Chapter 7 bankruptcy, your mortgage payment will be the same as it was before you filed the bankruptcy. There is no way to “get around” this unless you refinance your home, in which you will need to obtain permission from the court to do so once you have filed the bankruptcy. If your vehicle is over 910 days (2 ½ years) before the date that you filed the bankruptcy, you may be able to do what’s known as a “cramdown”. If your loan balance is higher than what your vehicle is worth (the court will usually determine the value based upon NADA), then you can pay back the vehicle based upon what it is worth rather than the contracted loan balance. This option is only available in a Chapter 13 bankruptcy though. If it was purchased within the 2 ½ years before you filed, you will pay back the amount that is contracted in your Chapter 13 plan.
Therefore, bankruptcy may lower your car payment through a “cramdown”. However, it you will not be able to lower your monthly house payment through a bankruptcy. If you are behind on your house payment you could potentially file a Chapter 13 bankruptcy which will help you pay back the arrearages, or amount owed, but it will not actually lower your mortgage payment.
