Can I reduce my Bankruptcy Payment by giving back a House or Car?
People don’t file Chapter 13 for fun. They do it because they aren’t making enough money to pay everyone they owe and they need a break. Unfortunately, the confirmation of a Chapter 13 plan does not always end the financial problems that forced debtors into bankrutpcy in the first place. What do you do when you have filed and confirmed a Chapter 13 bankruptcy plan but experience reduced income or other financial problems you did not expect? Can you reduce your Chapter 13 payments?
Yes, but only in certain circumstances. The most common way to reduce your Chapter 13 bankruptcy monthly payment amount is to give an automobile or house back to the creditor that owns it. Secured debts in bankruptcy must be paid in full, so getting rid of a secured debt will reduce your monthly payment. If you cannot afford your Chapter 13 payment and have a car in the bankruptcy that you don’t absolutely need, then you should contact your attorney to file a motion to amend your plan to surrender the vehicle. If the plan has not yet been confirmed, then you can surrender a vehicle without penalty. If the case has been confirmed, then the creditor may object and demand that their deficiency claim (the amount they are owed after they sell the vehicle) be paid in full.
Getting rid of secured collateral is easier if you can find a buyer. If the bank objects to taking the vehicle back in full satisfaction of their claim, then you can often save yourself some money by finding a buyer for the vehicle. If the bank takes it and auctions it, they’ll get a low wholesale price, so any reasonable purchase offer you can bring will reduce the amount left owed to the bank.
With homes, the situation is easier for you. The bank cannot force you to pay for a deficiency balance in bankruptcy, even if you surrender the home after your case has been confirmed. So at any point before your case is completed, you can surrender a home with no penalty. And you don’t even have to file a motion and go to court. Simply quit making payments on the mortgage. Eventually, the bank will move the court for relief from the automatic stay and it will be granted. They will foreclose on the home and if you owed arrears at the time you filed the bankruptcy, those arrears will be withdrawn from the case. (Though you may want to have your bankruptcy attorney object to the claim as soon as relief is granted so that you can reduce your bankruptcy payment sooner – this is one situation where it really helps to have a good bankruptcy lawyer).
Regardless of how you go about doing it, giving collateral back to the bank that owns it will save you money in the long run and if you are struggling to make your current Chapter 13 payment, it may be the only way to keep your payment affordable so you don’t get your case dismissed.