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How Chapter 13 Bankruptcy May Reduce Your Principal Loan Balance

Posted By Allmand Law Firm, PLLC || 30-May-2013


Can Bankruptcy Reduce Your Principal Loan Balance?

Did you know that Chapter 13 bankruptcy may help you reduce your principal loan balance on certain secured debts? Many consumers may not realize they'd qualify to have debt such as a car loan reduced in order to establish affordable monthly payments. The concept is also referred to as a cram down. Understanding potential benefits may give an idea on whether it is a solution that can improve your financial situation.

There are certain secured loans aside from vehicle loans that qualify for a cram down. Basically, the principal loan amount is reduced based on the current value of the property in question. The Chapter 13 repayment plan would include a new monthly payment based on the worth or value of the item or property. Meaning, your interest rate associated with your loan may be reduced changing your outstanding balance. In other words, you end up paying a certain percentage of the total balance due on the loan. At the end of the bankruptcy the remaining amount left may be wiped out, similar to how unsecured debt is treated in Chapter 13.

This may help stretch out payments on the loan to reduce what you pay each month. The bankruptcy court may determine your interest rate. The repayment plan approved by the court may last anywhere from 3 to 5 years. It is important to review qualifications for a cram down since you may need to have made payments on the property in question for a specific amount of time before filing bankruptcy.


Categories: Chapter 13 Bankruptcy
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