Will I Lose My Car In Bankruptcy?

Your bankruptcy needs can be solved without the loss of your automobile

. Assuming that you need to keep your car its normally possible to file bankruptcy and keep it.

First, are you current on your payments? If you are behind in your payments and are unable to work with your creditor to get a satisfactory arrangement to catch up on the loan, you will probably need to file a Chapter 13 bankruptcy. Many people resist the idea of a Chapter 13 bankruptcy because they think that this kind of a bankruptcy requires them to pay back all of their debts. This is not true.

Chapter 13 bankruptcy would allow you to keep your car, force the creditor to accept a payment plan so you can catch up your missed payments, and you might still be able to discharge all or practically all of your credit card debt without any repayment. This is because chapter 13 plans do not require you to necessarily pay back all of your unsecured debt.

Additionally, in a Chapter 13, you might be able to actually pay less for your car than what you owe on it. If you file a Chapter 7 and keep your car, you will be required to pay the full contract amount of the payments and all the interest just as if you had not filed bankruptcy. You would sign a document called a reaffirmation agreement which takes the car, essentially, out of the bankruptcy. Later, if you fail to make the payments as required, the bank can repo the car and sue youi for the debt. You will be responsible for the difference. If you do not pay it, you can be sued.

In a Chapter 13 bankruptcy, you could be able to pay less for the car if it has been more than 910 days since you purchased it when you file your case. If this is the case, you can pay only the value of the car which might be less than what you actually owe under the terms of your contract. This is called a cram down.

If you have purchased the car within 910 days of filing your bankruptcy, then you will have to pay the full purchase price but you will not necessarily have to pay the contract rate of interest. In some locations, the interest paid on cars purchased within 910 days is about 6%. So, if you have a high interest loan on your car you can lower the interest rate significantly in a Chapter 13 bankruptcy.

If you are current on your car and wish to keep it, and otherwise qualify for Chapter 7, you would sign a reaffirmation agreement in your bankruptcy and continue to pay the car as if you had mpt filed bankruptcy. The creditor is generally is happy to receive the money. They do not want your car. If you owe a more on the car than you could sell it for, then it might be wise to let the car go back to the bank. This is a surrender.

I regularly see people buying cars immediately prior to filing chapter 13 or Chapter 7 bankruptcies, and letting the car that is being replaced go back to the bank as part of the bankruptcy case. This is a move that makes a great deal of sense in some instances, particularly if the car has significant mechanical problems or is worth much less than what is owed on it.

There are a number of different options available to people who file bankruptcy and want to keep their car. Whether it is a Chapter 7 or Chapter 13, it is usually possible to obtain significant bankruptcy relief and still keep your car.

by: Richard West

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