Keeping your auto loan during your bankruptcy often depends on the kind of bankruptcy you file, and the specifics of your situation. No matter what though, you may have a few options you might not know about – yet!
Chapter 7 and Chapter 13 Bankruptcy
Typically, when you file a personal bankruptcy, you either file a Chapter 7 or a Chapter 13. Both can help you consolidate and eliminate debt to pay off creditors and get your finances on track. They go about it in totally opposite ways, though.
A Chapter 7 bankruptcy is called a liquidation bankruptcy. It's a short process that typically lasts around four to six months. In this filing, you're appointed a bankruptcy trustee by the court who's responsible for selling off any of your nonexempt property in order to repay some of your debts. This could include your vehicle if you can't protect its equity with an exemption.
Once the process is complete, your bankruptcy is discharged and any remaining unpaid debts are wiped out. This usually leaves you with a clean slate as far as debt is concerned, and a lower credit score.
A Chapter 13 bankruptcy is considered a consolidation bankruptcy. It's a long process that takes either three or five years to complete. During this time, you're responsible for working with your bankruptcy trustee to repay as much of your debt as you can. Your trustee comes up with a repayment schedule and is responsible for doling out payments to your creditors. Again, if you successfully get it discharged, any remaining debts are wiped away.
In a Chapter 13 bankruptcy, you're most likely to be able to keep your car even if you're behind on your loan. And, since it takes so long, there's a process in place to allow you to get an auto loan if you need one during bankruptcy.
Keeping Your Car Loan and Filing Bankruptcy
If you have a car loan when you file bankruptcy you may still be able to keep it, but your options vary depending on your bankruptcy chapter, and whether or not you're current on all your loan payments.
Chapter 7 Bankruptcy:
In a Chapter 7 bankruptcy, you have few different options to consider. If you're current on your loan payments and can keep up with them throughout your bankruptcy, you should be able to keep your vehicle as long as you can protect the equity in your car.
To do this, the amount your vehicle is worth has to be less than or equal to an amount you can cover with a motor vehicle exemption, a wildcard exemption, or a combination of the two. Exemptions are in place to allow bankrupts enough money to keep a modest car, and have the transportation they need.
If you're unable to qualify for an exemption, you may be able to negotiate a better deal on your loan with your lender with a reaffirmation agreement. Or, you may be able buy your vehicle outright by redeeming your loan – paying the total fair market value of your car in one lump sum.
Chapter 13 Bankruptcy:
The great thing about a Chapter 13 bankruptcy is that if you're behind on your loan payments when you file, that can be rolled into your repayment plan. This means that as long as you can pay off your entire loan within the three or five years of your bankruptcy you get to keep your vehicle.
If you can't exempt all the equity in your car, and need it to be more affordable during the course of your bankruptcy, you may even be able to cram down your loan. This process makes the loan amount you need to repay equal to the vehicle's value.
Getting an Auto Loan During Bankruptcy
If you're unable to keep your current vehicle, or something happens to it during your bankruptcy, you may not be able to go just anywhere if you need a loan for another car. Not all dealers with bankruptcy auto lenders. Those that do are called special finance dealerships, and they may not be easy to pick out of a crowd.
Luckily, you don't have to stress over finding a dealer alone. At The Car Connection, we have cultivated a nationwide network of special finance dealerships that are signed up with the lenders that can help when you're in bankruptcy – just make sure you check with your bankruptcy trustee before you make a move!
Then, fill out our fast and free car loan request form, and we'll work to connect you to a local dealer that can assist you!