Your Car Loan after Bankruptcy

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There are a few different ways to resolve your car loan after bankruptcy, depending on which type of bankruptcy you file. If you are unable to afford the car payments, it may be best to let the bank take possession of the car and discharge the debt in the bankruptcy. If you want to keep the car, you will have to make some payment arrangements with your lender. You should contact your bankruptcy attorney so you can discuss which options are best for you before making your final decision.

Chapter 7 Bankruptcy

If you are able to pay the past due amount that you owe on the car, you can retain possession by signing a reaffirmation agreement with the lender. You can also keep your car if you redeem the lender by paying a lump sum amount that brings the loan balance down to what the lender determines the car is worth. You then discharge the remaining amount in the bankruptcy. For example, if you owe $5,000 on the car and the lender determines it is worth $3,000, you can pay the lender $2,000 to redeem the car and the unpaid balance would be discharged by the bankruptcy.

If you do not have any money to pay on the car loan, you can let the lender take possession of your car and include the remaining balance in the bankruptcy filing. Contact the lender and advise them of your intentions, and they will tell you how to relinquish possession of your car.

Chapter 13 Bankruptcy

The Chapter 13 reorganization plan can allow you to retain possession of your car in many cases. There are two different ways you can go about this under a Chapter 13 filing. These methods are called:

  • 910 Claim
  • Cram down

A 910 Claim is for a vehicle you purchased less than 910 days before you filed for bankruptcy. You must still make all of the required payments, or your lender may repossess the car any time the payments fall behind.

The cram down option is for a car purchased more than 910 days before your bankruptcy was filed. The amount you have to pay depends on the value of the car, and the balance that is owed. For example, if the car is valued at $5,000, but you owe the lender $7,500, under a Chapter 13 bankruptcy you are only responsible to pay the lender the $5,000 value amount.

Since a Chapter 13 reorganization plan is usually from three to five years, your monthly payment can be spread out over the entire term of the bankruptcy plan. This is convenient if your original payment was higher, since you will be able to use the monthly savings for other purposes.

If you already have the title to your car since you paid back the loan in full, a Chapter 13 bankruptcy will protect the car from any creditors that are attempting to collect on the debt that is owed them.