Daily Archives: October 27, 2015

What Happens To My Car In Bankruptcy?

Folks always want to know, can I keep my car in BANKRUPTCY

car if I file bankruptcy?

As always, it depends.

It depends on what chapter of bankruptcy you file, Chapter 13 payment plan bankruptcy, or Chapter 7.

It depends on how much the car, or other vehicle, is worth (which is not discussed in this post) when you got the car financed, if you did.

Are you leasing or purchasing?

Looks like there are going to be way more vehicle loans going into default:

auto loan balances had grown 17 straight quarters to $956 billion at the end of 2014. And while it noted that delinquencies and loss rates remained within manageable levels, the report also cited Experian Automotive data showing that 60% of auto loans originated in the fourth quarter 2014 had a term of 71 months or more.

Those long car loans increase the odds that something will go wrong, with the buyer’s income.

You co-sign for your kid’s car, the insurance lapses, then the collision, then you get the bill.

Or, a job layoff, or even a cut in overtime, and you can no longer afford the payment.

Vehicle is probably worth less than you owe on it.

So, selling it to pay off the loan:  not an option.

In Chapter 7 bankruptcy, you can still give the car back, and pay nothing.

You do NOT have to give up a vehicle when you file Chapter 7.

The finance companies, Ally, Honda Credit, whoever, are NOT car companies.  They want $, not cars.

So, you can reaffirm, sign an agreement that again makes you personally liable for the loan, so if it is repossessed in the future, you are on the hook if it is not worth what you owe on it.

In Chapter 13 bankruptcy, you can give it up, or keep it by maintaining the payments, if you are not behind.  (that is the rule in Detroit bankruptcy courts)

Goofy rule:  If you purchased the vehicle within 910 days of filing Chapter 13 bankruptcy, you have to pay the whole debt to keep the car.

If 911 or more days, you can still “cram down” the vehicle, by paying its value, plus interest.

So, if you owe $10,000 on a $5,000 vehicle, your Chapter 13 plan can provide for paying a $5,000 secured claim with interest, and the balance of $5,000 goes in the unsecured creditor class with credit cards and such.

What about a leased vehicle in bankruptcy?

Leases are a different animal, you can assume or reject.

Reject a lease and give up the car, or, assume, but you have to make all the payments.  Regardless of what bankruptcy chapter you filed.

Complicated?

YES!

You need an attorney’s advice on this stuff.

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