There are many reasons for people to file for Chapter 13 bankruptcy. One reason in particular is the effect it can have on your car loan. People in Chapter 13 have a chance to reduce their interest rate on a car loan. People with a poor credit rating often get a terrible interest rate on their car loan — 15, 20 percent and even higher. (Learn more about your credit rating here.)
With Chapter 13, the good news is that the maximum interest rate you’re going to pay is what’s called Prime Plus. The prime interest rate (usually just called the Prime Rate, or Prime) is currently 5 percent. So the maximum you’d pay for your car loan would be Prime plus another small percentage — typically 1 to 3 percent, for a total interest rate in the range of So, you’re looking at a range of 6 to 9 per cent, which is much better than the 15-20% or more that some people have on their car loans.