Keeping Your Car in Bankruptcy

You can save your car in bankruptcy through a variety of legal methods. First, it is important to realize that bankruptcy is a difficult solution to a complicated problem. Once you declare bankruptcy, you will have a black mark on your credit for many years to come. This makes it difficult to secure new loans, and it can even compromise your chances of securing business opportunities. Bankruptcy is an option of last resort; if you qualify, though, it can save you from further detriments to your possessions and finances. 

Automatic Stay on Repossession

When you first file your bankruptcy, a judge will halt all actions against you by your creditors. The judge needs to evaluate your debts and determine a plan of action moving forward. This applies in both Chapter 7 liquidation cases and Chapter 13 reorganization cases. As a result, you will be able to temporarily stop any repossession that may be occurring against your vehicle. Once a judge has determined the best way to resolve the debt, the creditor may begin the repossession process again. Therefore, this stay is only temporary, but it can save you from losing your vehicle in the immediate future. 

Voluntary Repossession

Either before or after bankruptcy, you have the option of voluntarily surrendering your vehicle. This is called a voluntary repossession, and it has many benefits despite the fact that you will lose your car. First, the repossession will not appear on your credit as involuntary. This protects you from future discrimination over the problem. Furthermore, the lender may accept the repossession as final payment on the loan. This would erase any obligation to repay the debt or finance charges. Finally, you will be saved from the potential embarrassment and hassle of having your car seized involuntarily. Creditors will not show up at your work or school to take your car.

Reaffirm a Loan

Once you have declared bankruptcy, you can save your car loan through the process of reaffirming the loan. This is an option only in a Chapter 13 filing, because a Chapter 7 filer typically does not have sufficient income to begin making payments again. If you do have income to restart payments, the court can reorganize your payment schedule. You can pick up where you left off, starting to repay the lender in small increments. This will save your car; however, there is a very strict policy over missing any future payments that would result in repossession.

Redeem a Loan 

Loan redemption is very similar to refinancing, but it occurs as part of the bankruptcy process. If you qualify to redeem the loan, you will essentially get a whole new auto loan. This new loan will be used to pay off the existing debt. The new payments will be restructured to a level you can afford. No down payment is initially required on these loans. However, like reaffirming the loan, redeeming the loan comes with little flexibility for missed payments in the future. Redemption is only a wise idea if you can budget for the new payments without risk of future delinquency or default.