Auto Loans in Bankruptcy - Can You Keep Your Vehicle?
One of the biggest worries individuals facing bankruptcy have before beginning the process is what property they will lose. Will they lose their home or their cars? This is one of the biggest misconceptions and common bankruptcy myths. In fact, many of our clients are able to keep the majority of their possessions when they file for bankruptcy. It is very likely you will be able to keep certain pieces of property, including your vehicle when you file for bankruptcy.
Bankruptcy and the Car Loan
An individual facing bankruptcy is likely having trouble meeting his or her financial obligations, one of those being his or her car loan. However, for the vast majority of people, having a car is an absolute necessity. How else would we get to work every day, the grocery store or pick up our children from school? The problem arises when it is impossible for the person facing bankruptcy to pay for the car that is so desperately needed. You do have options in bankruptcy.
Negotiating with the Lender
When an individual files for Chapter 7 bankruptcy, he or she is required to inform the lender what is planned with respect to their vehicle. This notification is done on a Statement of Intention for Individuals Filing Under Chapter 7 bankruptcy form, which will be filed with the court and sent to the lender. The individual can surrender the car, reaffirm the loan or redeem and pay the actual value of the car in one lump sum. It may help for the borrower to contact the lender to negotiate new terms on the loan through a reaffirmation agreement. At the end of the day, the lender wants to be paid, and it never hurts to try and negotiate with them. Ultimately it depends on the type of bankruptcy you file as to whether the person can keep his or her vehicle.
Auto Loans in Chapter 7 Bankruptcy
Chapter 7 bankruptcy is otherwise known as liquidation bankruptcy. The borrower gives up assets in exchange for having most or all of their debts discharged. When it comes to Chapter 7 bankruptcy, the individual has the three options mentioned above: reaffirm the debt, redeem the car or surrender it. By reaffirming the debt, the person continues to make payments on the car. If the person wishes to keep their car, he or she must sign a Chapter 7 Individual Debtor’s Statement of Intention. The individual must continue making scheduled payments on the vehicle and if they are unable to do so, the vehicle is at risk of repossession by the lender. By redeeming the car, the person has to come up with the money needed to make one lump-sum payment towards the car, which can be difficult unless that person is able to get a loan from friends or family. The final option is to surrender the car, which means the person gives up the car. The benefit of this is the person has the opportunity to purchase a less expensive, more affordable vehicle.
Auto Loans in Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a reorganization form of bankruptcy which allows the borrower to work with the bankruptcy trustee to restructure payments and pay back the debt obligations owed. This payment plan would include the car loan debt. However, how the car loan is handled depends on how old the car is. Newer loans, meaning cars that are less than 910 days old, must be paid off in full under a Chapter 13 filing. However, under the bankruptcy guidelines, it is possible that the interest rate could at least be reduced, which would make meeting the monthly payments easier. If the car loan is older than 910 days, the court gives the borrower a payment amount that is pro-rated, based on the value of the car or fair market value.
At The Benenati Law Firm, we have helped thousands of individuals and families eliminate their debt and get a fresh start financially. If you have any questions on this topic or are struggling with overwhelming debt, call Orlando bankruptcy attorney, Walter Benenati at 407-777-7777. Ask Walter how you can restart your life. The day you hire our firm, we will contact your creditors to stop the harassment and collection calls. We make our hours convenient for our clients and offer free consultations on Saturdays (9:00 a.m. – 3:00 p.m.) and throughout the week until 5:00 p.m. If you are in a financial crisis and considering filing for bankruptcy, contact an experienced Orlando bankruptcy attorney who can advise you of all of your options.