Bankruptcy protection and your car

On Behalf of | Nov 7, 2022 | Chapter 7 |

Besides the house, the prospect of losing your car is one of the biggest anxieties associated with personal bankruptcy. Most of us rely on our vehicle to commute to work, run errands, transport the children — basically, almost any time we leave the house, we need to drive.

If you are worried that your car might get repossessed if you file for bankruptcy, there are things you can do to protect yourself while taking advantage of the process to reduce or eliminate your debt. Here are a few options related to Chapter 7 bankruptcy, also known as liquidation bankruptcy.

  • Many auto loan lenders require their debtors going through bankruptcy to sign a reaffirmation agreement and submit it to the bankruptcy court. The reaffirmation agreement is a contract in which you promise all or part of the remaining balance on your loan. Some lenders will repossess your vehicle unless you agree. As long as you abide by the terms of the agreement, you should get to keep your vehicle.
  • Some lenders don’t demand a reaffirmation agreement. Again, keeping up your monthly payments should keep the tow trucks away.
  • If your vehicle’s current fair market value is below what you owe on the auto loan, you can redeem the loan with a new lender, if you can find one. This lets you reduce your monthly payment as well as keep your vehicle.
  • Another possible option is to try to negotiate directly with the lender to reduce your balance to fair market value. Though most lenders won’t do this, it doesn’t hurt to ask.

Chapter 13 bankruptcy does not typically involve giving up assets like vehicles. As long as you keep up with your payments, you should be fine. As a benefit, the court might reduce your interest rate. And if your loan is older than 910 days, you could receive a prorated monthly payment based on the vehicle’s fair market value.

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