You may have run into hard times and you might be considering filing for bankruptcy. There are a lot of questions that you will want to ask yourself before filing for bankruptcy, but one important one is what will happen to you auto loan and your vehicle if you file?
There are two main types of bankruptcy to consider Chapter 7 and Chapter 13. Both of these have different rules when it comes to vehicles and auto loans, so check out the information below to stay informed on your options.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is when you give up a lot of your property to have your debts discharged. With auto loans, you have three options in Chapter 7 bankruptcy.
Reaffirming the Car Loan – In this situation, you will sign a contract to continue paying off the car loan as you have been before bankruptcy.
Redeeming the Car – This would be that you have to pay the lender the current market value of the vehicle all in one payment.
Surrendering the Car – If you cannot afford either of the above options, you will need to surrender the vehicle and your debt will be discharged.
Chapter 13 Bankruptcy
During Chapter 13 bankruptcy, you use a repayment plan to pay off most of your debts in one payment. There are a couple of options for you if you want to keep your car and your auto loan.
Repayment Plan – The repayment plan for Chapter 13 bankruptcy helps you pay off your debt with your money excluding necessary living expenses. Your car, in most cases, will be a necessary living expense; however, if you own a luxury car, it may not qualify as a necessary expense.
Cramdown – If you qualify for a cramdown, it can be a good deal for you. This helps you reduce your loan balance so it is the same as the current value of the car. Then you will be able to get rid of some of your car loan.