I have a lot of debt -- school loans (won't go away, I know), about 13k in credit cards, and more. I recently made a very foolish decision, and bought a car, taking on about 19k more in debt. My income just isn't enough to sustain these monthly payments, and I'm wondering -- if I take the plunge and go for chapter 7, what happens to that car loan? Do I need to separately return it to the bank?
If you surrender the car and file bankruptcy, all that the bank will get is the car; they will no longer be able to garnishee your wages. Without filing bankruptcy, the bank would sue you and then garnishee wages for the remaining deficiency balance. That amount can be high, since only auto dealers can bid at the auctions, and they pay wholesale only, so they can resell at retail. However, you can get the same benefit of getting rid of you personal liability and keep the car after bankruptcy, so long as you remain current on the payments and insurance, and do not reaffirm the car debt. Sometimes, getting rid of your credit card debt can free up enough income for you to keep up on other things. You do not need to make a final decision immediately but can instead just wait and see how it goes. Even though you must file a statement of intentions regarding the car, you are still allowed to change you mind. Everyone's situation is different, however, so you should discuss these options in detail with your attorney before deciding. On upside down car loans at least 2.5 years old, you can also sometimes use chapter 13 to limit the lender's secured claim to the value of the car over five years, which can substantially reduce your payments.
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Most of the time a person in a Chapter 7 Bankruptcy will "reaffirm" on a car loan and keep making the payments on the car. However, if the car is no worth as much as you owe, you will want to consider "redeeming" the car for its true cash value instead. Believe it or not, their are special lenders that will lend you money for this purpose. Talk to your attorney about this. Redemption is a cool concept, but complicated. Good luck.
In Chapter 7 you have three choices, retain (and usually reaffirm for full value), redeem in a lump sum of cash for fmv, or surrender. Some lenders require reaffirmation to retain, others don't. Hope this perspective helps!
You may surrender the car in bankruptcy. This would mean that you could voluntarily surrender the car to the bank (ask them to pick it up or drive it to the bank) and no longer have to pay the loan. If you surrender the car without bk, odds are very good the creditor can come after you for any deficiency balance owed after the car is sold at auction.
You could potentially "redeem" the car in a bankruptcy. if you owe much more than what it is worth, you can use the bk to pay the current value to the lender (not the amount owed). You would need a new lender willing to work with you in bk. There are several lenders out there who do this. This also increases the cost of your bk, but if it saves you money in the long run on the car it would be worth it. Talk to a bk attorney in person about all of your options.
Best wishes!
If you file Chapter 7 bankruptcy, you get to decide whether you want to keep the car and the debt, or, surrender the car and the debt. You may want to investigate the fair market value of the car by running it on Kelly Blue Book (www.kkb.com) before you decide. If you owe more than its worth or you can't afford to make the payments, surrendering it in the 7 would be the way to go.
Good luck!
When you file chapter 7 bankruptcy on a secured loan, whether it be a home, vehicle, appliances or furniture, you have several options to choose from. The most common is to "reaffirm" the loan. Reaffirming the loan is essentially signing a new contract (often with similar or identical terms to the original agreement) so that you may continue making payments on the collateral and remain in "good" standing with the lender. This option has several benefits and drawbacks. The main benefit, at least in the eyes of most debtors, is that you will continue to receive monthly billing statements from the lender and your timely payments will be reported to the credit bureaus. This will help you restore your post-filing credit. The main drawback, however, is that as a result of signing this agreement, you are personally liable for the loan until its maturity and the protection you inherited from filing bankruptcy, which allows you to surrender the collateral back to the lender at any time, is relinquished. In your specific case, if you are positive you would like to give up the vehicle, chapter 7 bankruptcy gives you the right to surrender it back to the lender and have no liability to pay back the remaining balance of the loan. If the car is relatively new and in good condition, the lender should have no issues repossessing the car in a timely manner. Once the car is repo'd you are free and clear from all liability.
