Filing for bankruptcy will stop car repossession, buying you time to find alternate transportation or negotiate a payment arrangement.
If your delinquency is recent, and you have a good history with the creditor, Bankruptcy Attorney John Hicks may be able to negotiate a loan modification, especially if you want to reaffirm the debt and keep the car.
When you file a chapter 7 bankruptcy case, you have the following options:
- To reaffirm your car loan, that means you sign a new contract with your car creditor most often under the same terms as your original contract,
- To redeem your vehicle, that means for vehicles that qualify (normally less than 100,000 miles and no more than 7 years old), you obtain a new car loan with the help of your bankruptcy attorney.
- The new car loan will be only for the value of your vehicle not for the original contract, the difference will be wiped out through the bankruptcy.
- Your loan balance is in most cases lower but the interest rate might be higher.
- Redemption is often a good alternative to reaffirming your old car loan.
- To surrender your vehicle, that means you return the vehicle to the car creditor or make arrangements for them to pick it up.
- Sometimes, when the car is nearly paid for, needs repairs and does not have a high resale value, the car creditor might not want the car returned. In these cases, the city might tow the car from a public street or you could dispose of it in other ways.
- It will be difficult in these cases to sell the vehicle because the lien of the car creditor is still on the title of the car.
- When you surrender your vehicle in bankruptcy whether the car creditor takes it back or not, you are not liable for the vehicle loan anymore since the debt is being wiped out through the bankruptcy case.
When you file a chapter 13 bankruptcy case:
- You can keep your vehicle: You will pay the loan balance over the length of the chapter 13 plan with the court interest rates.
- This lowers the payment in most cases significantly. If your vehicle was purchased 2.5 years before filing of your bankruptcy case, you have to pay only the value of the car, similar to redemption in a chapter 7.
- The difference between value and loan balance is treated as unsecured and does not get paid in most cases.
- At the end of your chapter 13 bankruptcy case, it is wiped out through the discharge together with your other debt. This is called cram down, because you are cramming down your debt to the value of your vehicle.