If You File Bankruptcy: What Happens to Your Car Loan?

You may be able to keep your car after filing for bankruptcy, but it will depend on several factors. Find out what you need to know about bankruptcy and your car loan.

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Introduction

There are two types of bankruptcies that individuals can file, chapter 7 and chapter 13. In a chapter 7 bankruptcy, also known as a “straight bankruptcy” or a “liquidation bankruptcy,” the debtor’s nonexempt assets are sold off and the proceeds are used to pay creditors. In most cases, the debtor will not have to make any payments to creditors after filing for chapter 7 bankruptcy.

In a chapter 13 bankruptcy, also known as a “reorganization bankruptcy,” the debtor keeps their nonexempt assets and pays back creditors over time through a court-approved repayment plan. The repayment plan will last for three to five years and the debtor will make regular payments to a trustee during that time.

If you have a car loan, the type of bankruptcy you file will determine whether you can keep your car or if you will have to give it up.

What Happens If You File Bankruptcy and Have a Car Loan?

If you’re considering filing for bankruptcy, you may be wondering what will happen to your car loan. When you file for bankruptcy, your car loan may be discharged, which means you would no longer be responsible for repaying the loan. However, the lender could still try to collect the debt from you.

The Car Loan is Secured by Collateral

If you file bankruptcy and have a car loan, the car loan is secured by collateral. This means that the lender can take your car if you don’t make your payments. In most cases, you’ll be able to keep your car if you continue to make your payments. You may also be able to renegotiate the terms of your loan with the lender.

The Car Loan May Be Discharged in Bankruptcy

If you decide to file for bankruptcy, one of the first things you’ll need to do is figure out which type to file. If you choose Chapter 7, also known as a “straight bankruptcy,” your car loan may be discharged, which means you wouldn’t have to repay it.

Chapter 7 bankruptcy is the most common type of bankruptcy filed in the United States. In a Chapter 7 bankruptcy, the court appoints a trustee who will oversee the administration of your case. The trustee’s job is to sell any non-exempt property you have to repay your creditors. In most cases, your car will be considered exempt property, which means the trustee can’t sell it.

If you’re current on your car loan payments and you want to keep your car, you can reaffirm the loan. This means you’re agree to continue making payments on the loan even though it’s been discharged in bankruptcy. You’ll need to sign a new contract with the lender that states this agreement.

The Car Loan May Be Reaffirmed in Bankruptcy

If you are current on your car loan payments and file for Chapter 7 bankruptcy, you may be able to keep your car by reaffirming the loan. When you reaffirm a debt, you agree to continue making payments and are still responsible for the debt even after your bankruptcy is discharged. You will need to sign a new promissory note and may have to pay any arrearages. If you reaffirm your car loan, be aware that if you later default on the loan, the creditor can repossess your car without first having to obtain a court order.

If you are behind on your car loan payments and file for Chapter 7 bankruptcy, you can choose to surrender your car back to the lender or lender can choose to repossess it. If you want to keep the car, you will need to catch up on the payments (called “reinstating” the loan) or enter into a new repayment plan with the lender (called a “repayment plan” under Chapter 13 bankruptcy).

Under Chapter 13 bankruptcy, as long as you are current on your car loan payments, you can keep your car. If you are behind on your payments, you can still keep your vehicle by paying off the arrearage over the life of your 3-5 year repayment plan.

What Happens If You File Bankruptcy and Do Not Have a Car Loan?

If you file for bankruptcy, all of your assets will be frozen. This includes your car. If you do not have a car loan, your car will be safe from being repossessed. However, if you do have a car loan, the lender may try to repossess your car.

You May Be Able to Keep Your Car

If you have a car loan and you’re thinking about filing for bankruptcy, you may be wondering what will happen to your car loan. Can you keep your car if you file bankruptcy?

The answer to this question depends on a few factors, including the type of bankruptcy you file and the value of your car.

If you file Chapter 7 bankruptcy, also known as liquidation bankruptcy, any nonexempt property you own will be sold in order to pay your creditors. If your car is exempt, you may be able to keep it. Whether or not your car is exempt depends on the laws in your state and the value of your car.

If your car is not exempt, you may still be able to keep it if you can afford to continue making payments on the loan. You can do this by “reaffirming” the loan with the lender. This means that you agree to continue making payments on the loan even though the debt is dischargeable in bankruptcy.

If you file Chapter 13 bankruptcy, also known as reorganization bankruptcy, you will not have to give up any property. This includes your car. However, with Chapter 13 bankruptcy, you must continue making payments on all secured debts, such as a car loan, in order to keep the property.

Bankruptcy can be a difficult decision to make, but it may help give you a fresh start financially. If you’re considering bankruptcy and have questions about what will happen to your car loan, speak with an experienced bankruptcy attorney in your area for more information.

You May Be Able to Get a New Car Loan

If you do not have a car loan, you may be able to get a new one after you file for bankruptcy. The bankruptcy will stay on your credit report for seven to ten years, but that does not mean you will never be able to get another loan. In fact, many people are able to get new loans within two years of filing for bankruptcy.

Conclusion

We hope this article was helpful in understanding what happens to your car loan if you file bankruptcy. As you can see, there are a few different options available to you depending on your situation. If you have any further questions, we encourage you to speak with a bankruptcy attorney who can help guide you through the process.