Bank finance articles and tips

When filing bankruptcy, a debtor can keep their car using several strategies. Let's take a look at a few:

If You Own Your Vehicle

If you own your vehicle and don't have a lease or loan attached to it, you can hold onto the car in Chapter 7 bankruptcy. As long as the vehicle is covered completely by the bankruptcy exemption allowances, Chapter 7 bankruptcy will allow a debtor to hold onto their car while discharging other unsecured debts. However, if the vehicle's value exceeds your bankruptcy exemptions then the bankruptcy trustee may ask you to sell the vehicle and distribute to creditors the amount which exceeds the bankruptcy exemption. Or, the bankruptcy trustee may allow you to pay cash for the amount that exceeds the exemptions. For example, if you have a vehicle worth $6,000 and an exemption for only $5,000, then you can pay the bankruptcy estate $1,000 cash and keep your vehicle.

Car Loans In Chapter 7 Bankruptcy

If you have a car loan and file Chapter 7 bankruptcy you can:
1) reaffirm your loan,
2) surrender your vehicle, or
3) continue to pay your car loan without a reaffirmation.

If you decide to reaffirm you car loan, you will be legally responsible for paying the loan after your bankruptcy discharge. A reaffirmation of a loan treats it as if it was never part of the bankruptcy. Before doing this speak with your bankruptcy attorney about any ill ramifications.

If you surrender your vehicle in Chapter 7 bankruptcy, you will be released from any responsibility for paying the car loan. Once you receive you bankruptcy discharge your loan is forgiven.

And finally, if you simply continue to pay your car loan without a reaffirmation, the lender will allow you to keep it; but will make no reports of payments to the credit bureaus. The bad news is that timely payments on a car loan which was not reaffirmed won't have any positive impact on your credit rating; but the good news is that if you fail to pay after your bankruptcy discharge, the lender can't pursue you for payment. Please note that some lenders will not allow you to keep the vehicle without signing a reaffirmation agreement so discuss this with your bankruptcy attorney.

Whether you decide to reaffirm a car loan or not, you must pay up any delinquent balance or the lender isn't likely to allow you to hold onto the vehicle. For example, if you fell three months behind before filing bankruptcy, you need to pay that arrearage.

Car Loans In Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, a debtor can keep their vehicle and pay up any delinquent balance over the course of three to five years. At the end of the debtor's repayment plan, they may still have a car loan depending on the loan's length; but they will be able to keep their car as long as they continue to pay on time and as agreed.

And while Chapter 13 bankruptcy allows a debtor to keep their vehicle, they do have the option of surrendering it. If a debtor surrenders their car in Chapter 13 bankruptcy, the lender will sell the car and submit a claim for any deficiency balance. The deficiency balance is treated as an unsecured debt and may be discharged at the end of the bankruptcy repayment term.

Reed Allmand, sponsoring attorney for Bankruptcy.net, is constantly looking for ways to provide the best financial information for his clients. Whether you are considering filing for bankruptcy, or are currently going through a Chapter 7 or Chapter 13, visit http://www.bankruptcy.net for up to date news and information you need to know.

By Reed Allmand
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