Is it Possible to Keep My Car Loan During Chapter 7 Bankruptcy?

It’s possible to keep your car loan during a Chapter 7 bankruptcy, but it may not be a wise idea, depending on how much you owe. You typically have a few options available if you need to keep your vehicle and loan while still filing a Chapter 7.

Chapter 7 Bankruptcy and Your Car

Is it Possible to Keep My Car Loan During Chapter 7 Bankruptcy?Chapter 7 bankruptcy is a short form of personal bankruptcy that's typically over in a matter of months.

This is usually what people think of when they imagine losing everything in a bankruptcy. A bankruptcy's goal isn't to just take away your things, but rather to help you manage debts that have gotten out of control.

To do this, the court appoints you a trustee, some to handle your case and liquidate your nonexempt assets. This means they sell any of your property they can in order to repay your creditors. This process usually takes about three to six months, and any unsecured debt that isn't able to be paid can be wiped away once the bankruptcy is discharged.

Your car could be one of the items liquidated if it's not covered by an exemption. Even if it's covered, you may choose to return a vehicle to the lender in order to reduce your debt. However, that's not your only option when it comes to keeping an auto loan during Chapter 7 bankruptcy.

Options for Your Auto Loan in Chapter 7

There are generally three options for dealing with an auto loan during a Chapter 7 bankruptcy, and one of them doesn't involve you keeping the car. Let's take a look:

  1. Surrender your vehicle – This option doesn't help you keep your financed car during your Chapter 7 bankruptcy, but it does allow you to avoid a confrontation with your lender, and possibly the repo man. Mainly though, it helps you to eliminate the debt you owe on your vehicle. If you surrender it, the lender sends a recovery company to come to collect your car after the court lifts the automatic stay which prevents collection actions from being taken during bankruptcy.
  2. Reaffirm your loan – When you sign a reaffirmation agreement with your lender, you agree to remain liable for the debt, and to not include your vehicle in the Chapter 7. The debt isn't wiped away in your discharge with all your other debts, and you have to continue making payments even after the bankruptcy ends, or you're going to be facing a swift repossession.
  3. Redeem your car – In order to redeem a vehicle, you have to pay the lender a lump sum payment for the current value of the car. In other words, you buy the vehicle right now for as much cash as it's worth. This is a good option if there's negative equity in the car, as the remaining difference between the vehicle's value and what you owe on the loan is wiped out on discharge.

Keeping a Vehicle You Own During Bankruptcy

If you no longer owe money on an auto loan, you have different options when it comes to keeping your car. Before you file your Chapter 7 bankruptcy, it's very important to know the estimated value of your vehicle. You're going to be asked how much your car is worth when you file your initial paperwork so that the lender can assess the value of your property.

If you don't know the current estimated value of your vehicle, you can use a site such as Kelley Blue Book or NADAguides to get an approximate value. If you need to keep your car, you have to ensure you can exempt the value of your vehicle. Otherwise, your bankruptcy trustee could sell your car in order to repay some of your debt.

If you're unable to hold on to a vehicle that you need during a Chapter 7 bankruptcy, you may need to get into another car quickly. This can be difficult during bankruptcy, especially a Chapter 7 because it's so short. Many lenders refuse loan applications from lenders during bankruptcy because they don't want to chance a loss if the vehicle gets included in your bankruptcy filing.

However, there are bankruptcy auto lenders that can help if you find yourself in need of another car during Chapter 7 bankruptcy – and we know where to find them.

Finding a Bankruptcy Car Loan

At The Car Connection, we've cultivated a nationwide network of special finance dealerships that are signed up with lenders to help people in many unique credit situations, including bankruptcy. If you need to find an auto loan during your Chapter 7 bankruptcy, then you've come to the right place!

Rather than becoming frustrated with turn downs and endless searching for the right lender, start here by filling out our fast and free car loan request form. Once you do, we'll get to work finding a special finance dealer in your area. There's never any obligation to buy, so what are you waiting for? Get started right now!


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