How to Keep Your Car when Filing Bankruptcy

Car loans are one type of personal loan that is often affected by bankruptcy.  Debtors file for bankruptcy relief, at least in part, because they are having trouble paying their car loan payments and they want the loans discharged. 

Creditors want their money and often urge debtors to reaffirm car loan debt.  The impact of a bankruptcy on a car loan depends on whether you file for Chapter 7 or Chapter 13 bankruptcy relief.

Ways to Keep Your Car and Reduce Your Car Debt in Bankruptcy

If you file for Chapter 7 bankruptcy then you have two options available that would allow you to keep your car.  Specifically, you can:

• Redeem a car under Chapter 7. In order to redeem a car under Chapter 7, you need to pay the creditor what the car is worth in one payment; or

• You may be entitled to keep your car if it is worth less than the amount exempted under bankruptcy law in your state. Many states allow debtors to keep cars if they are under a certain dollar amount.

If you file for Chapter 13 bankruptcy then you also have options available to you to help you keep your car.  In a Chapter 13 proceeding, you can:

Reaffirm Car Loan Debt

If you reaffirm car loan debt then you inform the creditor that you will continue to pay the debt in consideration for being allowed to keep the car.

Pay your creditor pursuant to a repayment plan under chapter 13.  A repayment plan under Chapter 13 allows you to pay a certain amount of money per month to satisfy your debts over a 3-5 year period.

Negotiate Cram Down Car Debt

If you cram down car debt then you will reduce your car loan payments because the fair market price of the car is less than the amount that you owed. 

It is important to follow the exact requirements for exercising any of your Chapter 7 or Chapter 13 options to keep your car.  If you do not then you may lose your car in your bankruptcy proceeding. 

Seek Legal Counsel

Your bankruptcy lawyer can advise you about your different options to keep your car as a debtor or collect on a car loan if you are a creditor.  Please contact a bankruptcy lawyer today for more information.