When filing for Bankruptcy with an outstanding car loan you may want to consider reaffirming the debt with the lender. When you reaffirm the car loan you agree that you will be responsible for the car loan debt despite filing for Chapter 7 bankruptcy . In other words, even after filing for bankruptcy you will need to pay your car loan and the lender agrees to not repossess the car as long as your payments are in compliance with the agreement. The only problem with reaffirmation is that if you fall behind on your car payments after your bankruptcy is discharged, lender can repossess the car and sue you for the balance of loan.
Most likely the lender will try to sell the car at auction; but if the proceeds of the auction is not enough to cover the car loan balance the creditor will attempt to recover the losses by suing you. It is important to note that many people still owe a loan balance even after the vehicle is sold because they are upside down on their loan. Discuss any affirmation agreement you are considering with your bankruptcy attorney.