Many people who come to visit with us about filing for bankruptcy have car loans. One of the most common questions from people is whether their car loan will be discharged in their bankruptcy case. Car loans are treated differently depending on what kind of bankruptcy you file.
A Chapter 13 bankruptcy is open for 3-5 years in which time you will make plan payments to the trustee. A Chapter 7 bankruptcy is usually open for 90-120 days, unless the trustee is claiming a tax refund or selling non-exempt property.
If you have a car loan when you file a Chapter 7, then you will need to decide whether you want to keep the vehicle. If you want to keep the vehicle, you will need to keep making payments on the loan. You may also be required to sign a reaffirmation agreement, which will make you liable for the car loan after your case closes. If you sign a reaffirmation agreement and are unable to keep up on your loan payments after your bankruptcy case closes, then the lender can repossess the vehicle. The lender will sell the vehicle at auction and pursue you for any deficiency between the sale price and loan balance. If you decide to walk away from the vehicle, then the car loan will be discharged in your bankruptcy case and the car will be repossessed. Discharged debt is debt you are no longer required to pay on after your bankruptcy case.
If you file a Chapter 13 bankruptcy and want to keep the vehicle, you will continue to make payments on the vehicle either through your plan payments to the trustee or on your own outside of the plan payments. If you decide you need to walk away from the vehicle, you can surrender the vehicle.
When reviewing your finances in consideration for bankruptcy, it is a good time to take a look at your car loans. Many times debtors owe far more on the loan than what the vehicle is worth. We are happy to discuss your bankruptcy options and car loan concerns during a free in-office consultation. Contact us today and start getting the answers to your bankruptcy questions.
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