Your Car & Bankruptcy – What Happens?

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By: Bill Henry
PublishedMay 15, 2020
2 minute read

If you’re considering bankruptcy as a means to get out from under overwhelming debt, you may be wondering what will happen to your car.

In this informative video, bankruptcy attorney Jen Koss discusses your options if you’re still making payments and if you’ve fallen behind on them.

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Many people are concerned about their vehicles when filing for bankruptcy, and rightfully so.

If You’re Still Making Payments

Our vehicles get us to and from work, to run errands, to pick up kids, etc. So I often get asked but what happens if I’m current on my car payment and I file a bankruptcy?

Well, in reality you have about three different choices.

First Option – Keep Your Car through Debt Reaffirmation

First, you can choose to keep paying your car payment per usual and reaffirm the debt after you file your bankruptcy.

This is usually the recommended option if you want to ensure that you can keep your car.

What is Debt Reaffirmation?

When you reaffirm debt, you agree to be responsible for the loan, and you cannot have that debt discharged through the bankruptcy.

Second Option – Keep Your Car Without Debt Reaffirmation

Second, you can choose to again, keep paying on your car payment per usual, but not reaffirm the debt after you file the bankruptcy.

However, this can be risky because the lender can still repossess the vehicle even if you’re timely on your payments because you did not reaffirm the debt.

Third Option – Give Up Your Car

Lastly, you can choose to voluntarily surrender the vehicle and have the unsecured balance at that point taken care of in your bankruptcy like other general unsecured debt.

I tell people to think long and hard about this one.

If you don’t foresee being able to afford your car payments in the future during the bankruptcy process would be the time that you would want to voluntarily surrender that vehicle so that the bankruptcy takes care of the balance owed.

If You’re Behind on Your Payments

As a side note, if you are not current on your car payments but you do want to keep your car, you would need to speak with a licensed attorney about a chapter 13 bankruptcy option.

This is because the chapter 13 bankruptcy option allows for you to make up missed payments to secured creditors, such as a vehicle lender, over time whereas you don’t have that option in a chapter 7 bankruptcy.

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