Yes, sometimes bankruptcy can lower your car payment! One roadblock to paying your debts in a New Jersey chapter 13 bankruptcy plan is a high car payment. This can limit the amount of disposable income that you have available to pay to the trustee.
The bank on the car loan is considered a "secured creditor" because they have a lien on the vehicle. The bankruptcy courts, however, take a realistic view of this status when the value of the car is less than the balance due.
In other words, if the car is worth $1,000, and you owe $3,000, the bank is not secured as to the whole amount; they are limited to the $1,000.
Therefore, under certain circumstances, the court can "cram down" the secured portion of the loan to the $1,000, and treat the other $2,000 as unsecured debt with your credit cards and medical bills.
The $1,000 balance would be re-amortized at the loan interest rate over the life of your bankruptcy repayment plan. You would then make that payment to the trustee, who would forward it on.
The rest of the $2,000 would be put into the pot of unsecured debt that includes credit cards and medical bills. Upon completion of your plan, the unsecured balance is discharged, and your loan is paid in full!
There are some catches, and it isn't right for everyone, so get more information here!
