Keeping a Car in BankruptcyIn most parts of the country having a car can mean the difference between being able to keep your job or becoming unemployed.  That’s why it is important that debtors considering bankruptcy understand the options available to them if they want to keep their car after filing for bankruptcy.

Options available to debtors filing Chapter 7 bankruptcy:

  1. The debtor can choose to pay one lump sum payment for the car’s current fair market value.  In other words the debtor in Chapter 7 bankruptcy could, if they had the money, pay to the creditor whatever the car’s current worth is and keep the car.  This would be the most convenient option; however, for most debtors they simply don’t have the cash to take advantage of this option during Chapter 7 bankruptcy.
  2. If a debtor wants to keep their car during Chapter 7 bankruptcy but cannot afford to give the creditor a lump sum payment, he/she may consider reaffirming the debt.  What this means is that the debtor agrees to continue making payments on their car loans as agreed to before you filed bankruptcy.  However, if the debtor fails to keep up his end of the bargain after bankruptcy, the creditor will have the right to repossess the car.
  3. And finally, if a debtor simply cannot afford to pay for the car in a lump sum or continue making payments on the car they can simply return the car to the creditor and the remaining amount of the debt will be discharged in bankruptcy.

For debtors filing Chapter 13 bankruptcy, there are two important things you need to know that will determine how your car loan will be handled:

  1. If you bought your car within 910 days before filing bankruptcy filing, you will be required to pay the full value of the car loan.
  2. If you purchased your car more than 910 days before filing bankruptcy, the bankruptcy court will only demand that you repay the car’s current fair market value.