BANKRUPTCY & YOUR VEHICLE
Having a car is a necessity in this day and age, but unfortunately cars can sometimes be very expensive and you will almost always need to take out a car loan to buy yourself a vehicle. Cars also lose value quickly, meaning that you may find yourself owing more on your car than what the vehicle is worth, or unable to sell the car and pay off your loan if you fall on financial hard times. Because car loans present so many financial problems for so many Americans, it is a common question to wonder whether a bankruptcy attorney will be able to help you to reduce or eliminate your car loan during a bankruptcy filing.
Bankruptcy and Your Car Loan
The first and most important thing to realize is that a bankruptcy attorney is not going to be able to help you wipe out your entire car loan and just keep your vehicle. It is not possible to do this because, as your bankruptcy attorney will explain to you, a car loan is a secured debt and the car is the collateral for the car loan. If you could keep the car and wipe out the loan, then it wouldn’t have been a secured debt at all.
If you do not wish to keep your car, however, then your bankruptcy attorney may be able to help you to avoid having to pay for any remaining balance on the loan, or form having to pay any money you might potentially have owed to your lender. You will have to give up the car or allow it to be repossessed, but any outstanding debts that you owed could then be included in a part of your chapter 7 bankruptcy filing and wiped out.
A bankruptcy attorney can also help you to keep your car during bankruptcy, even as you wipe out other debt. For example, if you file a chapter 7, you can reaffirm the car loan and keep paying it and won’t have to give up your vehicle as long as it isn’t worth a lot more than you owe (and more than the exemption provided under Seattle’s chapter 7 bankruptcy rules).
Finally, a bankruptcy attorney can also assist you, in certain cases, in keeping your car and in reducing the value of the secured car loan. This is possible if you file chapter 13 and you owe more on the car than it is worth. In some instances, the car loan’s value can actually be reduced to the market value of the car. Any remaining balance can then be classified as a standard unsecured debt that can be included in a chapter 13 repayment plan. Although you might have to pay something towards this in your 3-5 year repayment plan, you could potentially also have a large portion of this money owed forgiven. This is a great option referred to as a “cram down” in chapter 13 and you should ask your bankruptcy attorney if this might be an option in your bankruptcy case.