Your vehicle is likely necessary for daily life, whether it’s getting to work or handling family responsibilities. However, filing for Chapter 7 bankruptcy can leave you unsure about what will happen to your car loan.
While bankruptcy offers a fresh financial start, it doesn’t automatically erase secured debts. It’s important to understand how this process affects car loans so you can make informed decisions.
Keeping your car through reaffirmation
One way to keep your vehicle is through reaffirmation, which involves signing an agreement to continue making payments on your car loan after filing for bankruptcy. By doing this, you agree to stay liable for the loan as if you had never filed for bankruptcy.
Additionally, you must remain current on payments because missing them can still lead to repossession. Also, instead of restructuring the loan, you retain the original terms.
Using redemption to hold onto your car
Redemption gives you another route to keep your vehicle. The redemption process lets you pay the lender the car’s current market value rather than what you owe on the loan.
For instance, if your car is worth $5,000 but you still owe $10,000, you can pay the $5,000 to clear the loan and keep the car. This option can be useful if your car’s value is significantly lower than your loan balance, but you must pay the full amount in one lump sum.
Surrendering your car
Surrendering means voluntarily returning the car to the lender and eliminating your obligation to pay the loan. Once you surrender the car, you no longer owe any remaining balance, even if the car’s value is less than what you owe on the loan.
Surrendering can be a smart financial choice if you’re struggling to make monthly payments. It allows you to get rid of a costly asset and move forward without worrying about repossession.
Clearly, you have various options for what you can do with your car loan after a Chapter 7 filing. Weigh each alternative to determine which suits your situation.
