Is there any way to lower car payments during chapter 13 bankruptcy?

There are a couple of options to lower your car payment during a Chapter 13 bankruptcy.  You may cram down the value of the car, lower the interest rate being paid on the loan, or lengthen the term in which the loan is being repaid.

Cram Down

If your car loan was established more than 910 days before you filed bankruptcy, you may be able to “cram down” the amount paid to the creditor by paying only the fair market value of the car instead of the loan amount.  This benefit was utilized more widely before the 2005 change to bankruptcy code, which added the 910 day provision.  Before that change, the period of time you had the car was not evaluated unless it could be considered a fraudulent act on the part of the debtor.

Interest Rate

Another common way to lower your car payment in a Chapter 13 bankruptcy is to lower the interest rate being paid to the creditor.  This is particularly beneficial to debtors who have excessively high interest rates.  The courts have found that the interest rate for most creditors in bankruptcy should be set at the prime rate plus one point.  Considering many debtors start with any interest rate in the high teens lowering it to 6 or 7 percent makes a large impact on the total amount paid.

Term

You may also adjust your car payment by increasing the length of time you pay your Chapter 13 plan.  The plan term is between three and five years.  Therefore, if your original loan agreement called for 3 years, you may be able to pay it back over 5 years and greatly reduce the monthly amount paid.