Filing for bankruptcy can be stressful and slightly scary, especially if you depend on your car but still owe money on it. In chapter 7 bankruptcy you have a few options when it comes to your car, and some of them even allow you to keep the car. The following guide can help you better understand these options so you can make an educated choice.
Option #1: Surrender the car
This is the option that doesn't work for many people. If you depend upon the car to get to work or run necessary errands, this may not seem like an option at all. On the other hand, if you have more than one car, it makes sense to surrender the car that you owe the most on. This can greatly lower your post-bankruptcy financial responsibilities, making it much easier to recover afterward. It may seem difficult at first to adjust to life with only one car, but it can be done and the savings may be well worth the hassle.
Option #2: Reaffirm the car loan
Reaffirmed debt simply means that you excluded the car loan from the bankruptcy proceedings. You will need to sign a contract with the lender agreeing to continue with the car payments as previously agreed upon. It's easiest to successfully reaffirm debt if your payments on the specific debt are up to date. If this is the option you prefer, continue to pay your car loan throughout the entire proceedings.
Keep in mind, the reaffirmation must be approved by the court. The court will likely require that you demonstrate that the car is necessary and that the payments can comfortably fit into your post-bankruptcy budget. If you have exceptionally high payments or access to another paid off car, they may not approve the reaffirmation and you will lose the car.
Option #3: Redemption of the car
Redeeming your car simply means that you pay off the remaining value of the car. This is the current value, not the value of the car at the time of purchase. The creditor must agree to the value or the court will be responsible for determining the correct market value for the car. Even if you and the lender agree on a sum, the court must still approve it.
Much like reaffirmation, you must also prove that you need the vehicle and that paying the lump sum to the lender won't put any further stress on you after the bankruptcy. The trustee must also approve that the funds are used to pay off the car via redemption and are not to be used for paying other creditors.
For more help, contact a bankruptcy attorney in your area such as those found at Hoffman, Hamer & Associates, PLLC.