We rely on our cars for work, commuting, shopping and transporting our families.

Understandably, if you’re considering filing bankruptcy, you probably want to know what may happen to your car in bankruptcy.

Chapter 7 Bankruptcy & Car Loans

When filing Chapter 7 bankruptcy, you have three options for handling a car loan:

• Reaffirmation: You enter an agreement with your lender stating that you will continue to make regular payments on your car. In exchange, your lender will likely not repossess the vehicle – as long as you keep paying the bills. If you fall behind, though, your lender can sue you for what you owe. Note that reaffirmed debts are typically not discharged in bankruptcy and are strictly voluntary.
• Redemption: You agree to make one lump payment to your lender of the car’s fair market value – regardless of what you owe on the loan. Any amount you owe in excess of the car’s current value could be discharged as part of your bankruptcy.
• Surrender: If both making regular payments and forking over a lump sum are beyond your means, you can surrender your automobile to your creditor. Any debt you have on the car may be discharged by the court.

Chapter 13 Bankruptcy & Car Loans

Chapter 13 bankruptcy can effectively halt car repossession (similar to how it can stop mortgage foreclosure).

In Chapter 13 bankruptcy, the amount you’ll pay usually depends on how long ago you purchased your car.

• 910 Claim: If you purchased your car in the last 910 days (30 months), you must usually pay the full amount you owe, regardless of the car’s current value. The good news: the interest rate you pay may be significantly reduced by the court.
• Cram Down: If you bought your car more than 30 months ago, you’ll likely only have to pay the company the car’s present value over the course of your repayment plan.

Bankruptcy & Car Leases

Whether you file for Chapter 7 or Chapter 13 bankruptcy, you may continue making payments on a lease or surrender (reject) your lease and vehicle.

A bankruptcy lawyer can offer more details about how each chapter handles leases.