Keep Your Car If You File For Bankruptcy

Owning a car is necessary for most people, so, naturally, many people contemplating bankruptcy are concerned about losing their vehicles. Chapter 7 bankruptcy is a "straight bankruptcy," while Chapter 13 bankruptcy is a "payment plan," Both allow you to keep your car.

Chapter 7: Turning in Your Vehicle

For our first discussion, let's stick to something simple. You can "discharge" your automobile loan by returning the financed vehicle to the lending institution. The act is referred to as "surrendering" the car.

By filling out the Statement of Intention for Individuals Filing Under Chapter 7 Bankruptcy, you may notify the Chapter 7 court, the Chapter 7 trustee supervising your case, and your lender that you wish to forfeit your vehicle. When returning a leased vehicle, you'll utilize the same paperwork.

If a family member or close friend cosigned your loan to assist you in acquiring the automobile, they might be held responsible for the debt if you file for Chapter 7 bankruptcy and give up the vehicle.

Agreement Renewed

Entering into a reaffirmation arrangement with your vehicle lender is your first choice in a Chapter 7 case. If you already own your vehicle outright, this alternative is not available to you. Signing a reaffirmation agreement with the lender may keep the auto loan even if you file for bankruptcy.

To keep the automobile after filing for bankruptcy, you must keep up with the payments. If you fail to make your payments, the lender has the right to take back the automobile and seek a deficiency judgment from the court. If you are interested in pursuing a reaffirmation arrangement with your auto lender, you should contact them.

The bankruptcy court's approval is necessary, and it is unlikely to be granted if the lender does not cut the interest rate or the principal balance of the loan. If your bankruptcy filing reveals that you don't have enough disposable income to cover the amount, you may find it challenging to demonstrate that you can afford to make the payments. 1

Redeeming Motion

In Chapter 7, you can also choose to buy your automobile outright from your lender at the vehicle's market value at the time of the bankruptcy filing. This might be a viable choice if your car's value is significantly lower than your loan balance.

If you plan to use the vehicle for personal, family, or household purposes, and if you want to pay for the car in a single, flat amount, you may be eligible for redemption. A request to redeem must be filed with the bankruptcy court, and you must follow all of the court's procedures, including serving the move on your auto lender and presenting proof of the car's current retail value.

Your auto loan provider must agree to take a single lump sum payment from you if the court grants your application. Following receipt of payment, the lender will release all liens and transfer full ownership to you. 2 The process of filing a motion can be intricate; if you're thinking about doing so, you should talk to a bankruptcy lawyer first.

Drive and Pay

The practice of "pay and drive" is technically illegal. In 2005, Congress changed the Bankruptcy Code, which effectively abolished this possibility, although many people are still able to pursue it.

In the absence of a reaffirmation agreement or redemption of the vehicle, the bankruptcy discharge removes the debtor's obligation to make monthly car payments after the debtor receives the shot. Therefore, even if you continue making payments, the lender can take back the automobile at any point after you earn your discharge.

However, most lenders would not agree to this since they would rather have a steady income than take the chance of getting a low bid at the auction for a repossessed car. Maintain a payment schedule that allows you to stay current.

Completely and Owned

To keep your automobile out of the hands of the bankruptcy trustee, if you own it free and clear of any liens, you'll need to claim exemptions on Schedule C equal to its worth. The trustee can sell your automobile and use the proceeds to compensate you for the portion of the car's worth that you don't want to be exempted from. The trustee may provide monetary compensation, but you will be required to give up your vehicle.

The Chapter 13 Repayment Programs

Keep making payments as usual, or include them in your Chapter 13 repayment plan. If you owe more than your automobile is worth or your interest rate is too high, you can negotiate new conditions to pay off your loan in three to five years for no more than the car is worth. Cramdowns like the one you describe are often utilized to allow insolvent individuals to keep their vehicles.