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.