The simple answer for most of my clients in Chapter 7 bankruptcy, is that the bankruptcy affects the car loan. If you want to keep your car, you can most likely. Just continue to make your payments under the lease or the loan.
Now, what happens in bankruptcy to the car loan can be complicated, but I think I have a simple explanation.
When you purchase a vehicle, you sign two documents. One is a promissory note and the other is the lien for the title. The promissory note is your agreement with the lender that you will personally pay the debt for the vehicle. The lien on the title is the security that the lender gets to make sure you pay the loan back.
When you file a bankruptcy and you receive a discharge, you no longer have a personal obligation under the promissory note to pay for the vehicle. However, the lien on the title remains. This means that if you were to surrender your vehicle to the creditor, they can only take the vehicle back and they can’t ask you to pay for the remainder of the loan. This can be a great tool for a client if they are upside down on their vehicle or have previously rolled over negative equity in the purchase of the current vehicle.
A chapter 13 bankruptcy can allow you to force your lender to reduce your interest rate or reduce the principal you owe on your vehicle. You have the option to keep your vehicle at this lower payment, or if you want to obtain a new vehicle, you can surrender the vehicle to the creditor and obtain a new car and loan.
Many of my clients in chapter 13 take advantage of the restructuring of the payments and interest rates to make their vehicles more affordable and to free up their income each month by lowering their payments.
Our team can evaluate your options and help you make the best decision for you and your family. However, the bottom line is, if you want to keep your vehicle, most people are able to whether they file chapter 7 or chapter 13 bankruptcy.
If you have any questions about the topic discussed in this article, or any bankruptcy law matter, please give us a call at Bononi & Company 724-832-2499.