In a chapter 13, a person has options as to how they may pay their auto payments during bankruptcy. They may make their payments, as follows:
A. Make payments monthly payments directly to the finance company;
A. If they are behind with payments, they may cure their pre-filing arrears through the bankruptcy payments and make their regular future monthly payments directly to the finance company;
C. Pay the entire balance due through the bankruptcy plan; and,
D. Under certain situations, pay to the finance company only the amount equal to the value of the vehicle, at the time of the filing, through the bankruptcy plan.
Please note that the debtor may only apply scenario D under specific situations.
Under scenarios A and B, the monthly payment to the finance company is the same, as if the person is not in bankruptcy. The interest payment is the same, as well. Under scenarios C and D, the interest rate is determined by the prime rate at the time of the filing, plus an additional interest of 1% through 3%, based on the risk that the debtor will not make the payments. The risk is based on the circumstances of each debtor. This means that the interest rate will be a total of 3% at the lowest and 6% at the highest.
Under scenario C, the debtor will pay the balance due, plus the interest rate explained above. Under scenario D, the debtor will pay the retail value of the vehicle, at the time of the filing, plus the interest rate explained above. At the time this blog is written, finance companies are permitting 4.25% to 4.75% as interest rates for first time chapter 13 debtors, under scenarios C and D above.
Robert Manchel, a reputable NJ bankruptcy lawyer, is available to discuss your bankruptcy questions at (866) 503-5655.