Whether or not you can keep your vehicle if you file a Chapter 7 or Chapter 13 bankruptcy depends on two things: the type of bankruptcy and how far behind you are on car payments.
What Happens to My Car if I Declare Bankruptcy?
Filing for bankruptcy isn’t an easy decision to make. Depending on the type of bankruptcy you file, it can be discharged in as soon as a few months, or take years. The lasting impact of a bankruptcy can hurt your chances of getting auto financing in the near future, but it doesn’t necessarily mean you can’t keep your current car and auto loan.
Many consumers rely on a vehicle to get them around, and simply need to have one. Let’s look at how different bankruptcy filings can affect whether or not you can keep your car:
In a Chapter 13…
If you file for a Chapter 13 bankruptcy, you shouldn’t have any issues keeping your vehicle. A Chapter 13 bankruptcy is a reorganization bankruptcy, where you get to keep your assets and pay back your creditors through a repayment plan over the course of three or five years. If you’re behind on your car payments you can make them up through your repayment plan.
In some cases during a Chapter 13, you can reduce or “cram down” the balance owed, but your loan must be at least two and half years old and you need to reaffirm it in order to qualify. For example, let’s say your car’s actual cash value is $4,000 and you owe $6,000. If you want to cram down your loan, you have to verify the replacement value a dealer would charge and pay off the new balance by the end of the bankruptcy. When you reduce the auto loan to $4,000, the remaining $2,000 is added to your other unsecured debts and becomes part of your payment plan.
In a Chapter 7…
You have to give up any nonexempt property, which can include a vehicle, in order to pay back your creditors. A Chapter 7 bankruptcy only lasts a few months, but if the car meets your state’s motor vehicle equity exemption amount (this can range anywhere from $500 to a few thousand dollars) and you reaffirm your car loan, you can keep it. But, if you’re behind on your payments, you’re more than likely going to be forced to give up your vehicle.
Need to Find Car Financing?
If you’ve successfully completed a Chapter 7 or Chapter 13 bankruptcy and received your letter of discharge, or are dealing with an open Chapter 13 and need an auto loan, you may not know where to turn. Here at The Car Connection, we can help with that.
We work with a nationwide network of special finance dealerships that have the lending resources to help people in many types of credit situations get into the vehicles they need. Our process is simple, free, and fast. Fill out our online auto loan request form now, and we’ll get to work matching you with a local dealer!