Your Car in Bankruptcy

Bankruptcy helps people wipe out debt, including vehicle loans. For instance, if you owe more than your car is worth, you can return it to the lender and discharge (erase) the financing.

However, for most people, a car is a necessity. If you need one to get to work, to take the kids to school, or to perform household errands, you’re likely more concerned about keeping your car in bankruptcy than turning it in. Bankruptcy has options for you, too.

If you plan to file for Chapter 7, your first step will be determining whether you can protect your vehicle’s equity using your state’s exemption laws. You’ll also need to be current on your loan payments if you financed the car. Otherwise, your lender will be able to repossess it once the court lifts the automatic stay prohibiting collection activities.

If you’re behind on your payments and you can’t get caught up before filing your case, Chapter 13 might be the better option. You can bring your loan current over time, and if you have more equity than you can protect, pay the nonexempt portion in your Chapter 13 repayment plan.

But bankruptcy offers even more options. Both chapters have ways that you can reduce the amount you owe on a car. Just keep in mind that the requirements can be tough to meet. You’ll find details in the articles below. 

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