Auto Lien Stripping: How it Affects Your Car Loan

If you are considering bankruptcy, one of your main concerns may be your car loan, especially if it is worth considerably less than you owe. This is where a concept known as ‘auto lien stripping’ can benefit you.

When you first purchased your car, the entire loan was secured; but, now that you have made a few payments and depreciation has set in, changes can be made to how much you owe on your car during bankruptcy proceedings, provided that you purchased your car more then 910 days prior. For example, let’s say your car was worth $40,000 when you purchased it and that was the value of your car loan. So far, you have been able to pay it down to $35,000, but now the vehicle is only valued at $25,000 — a full $10,000 less than you owe. To remedy this situation, the judge can allow your lender to keep the $25,000 as a secured claim and convert the remaining $10,000 to an unsecured claim.

While the entire secured portion ($25,000) must be paid back, the unsecured portion ($10,000) can be reduced or even completely forgiven depending on the circumstances of your bankruptcy, your other debts, and the discretion of both the judge and your lender. You may even get a break on your current interest rate.

If you are considering bankruptcy, contact the offices of Allmand and Lee at (214) 265-0123 to discuss your options. They have helped other good people through bad times and they can do the same for you, too.