If you're filing for bankruptcy, it's because you are unable to pay your debts and this may include debt associated with a vehicle. Many debtors are reluctant to give up their vehicle during bankruptcy because they don't have any other way to get to and from work. But the catch 22 is that their vehicle is often too expensive or has debt associated with it that is worth more than the value of their car.
Below are a few things you must consider when making a decision to keep your vehicle in bankruptcy:
- Is the car worth more than the car loan? We've heard of upside down mortgages; but many people enter bankruptcy with car loans that are upside down. Paying for a vehicle valued at $10,000 with a $15,000 loan is just not smart when you're trying to get a fresh start in bankruptcy. If your car loan is inflated and exceeds the value of your vehicle you may want to consider surrendering the car in bankruptcy and buying a cheaper alternative.
- Does the lender insist that you sign a reaffirmation agreement in bankruptcy if you want to keep you car? Signing a reaffirmation agreement will make you legally liable for the car loan even after your bankruptcy discharges other debts. This is risky because if you are unable to pay the reaffirmed loan after bankruptcy, you will be liable for any balance after the car is repossessed and auctioned off.
- Do you have more than two years of car payments left on your car loan? The longer the repayment period on your car loan the higher the risk that you may default after bankruptcy. Reaffirming a car loan after bankruptcy that has a 2 year plus repayment period could put you at financial risk.