What Happens To My Car When I File Bankruptcy?

A lot of clients often wonder “What Happens To My Car When I File Bankruptcy?

When it comes to filing for bankruptcy and your car, you will have to make a choice whether you are going to give up your vehicle or keep it by continuing to make monthly payments. Once you have decided, you will inform everyone by filing a Statement of Intention (SOI) in a Chapter 7 or listing it in the Plan in a Chapter 13. If you have a lease, you have the option of rejecting it on your SOI/Plan or keeping your vehicle by assuming the responsibilities of the lease.

If you decide to walk away from your car, you will be cleared of liability on the debt.

In a Chapter 7 bankruptcy cases, if you decide to keep your vehicle, regardless of what is happening with your bankruptcy case, it is important to do everything in your power to continue making payments on it. You also have the opportunity to redeem the car – by either paying off the lender for the current value of the car in one lump sum (if you can afford it) or entering into a new contract for that value with a new lender.

If you keep the car and do not redeem, the creditor will ask you to reaffirm the debt. You would then confirm that you will continue making payments under and being liable on the initial contract. If you end up keeping your vehicle and continue to make payments as part of the contract, the lender still has the power to repossess your car if you default on payments, and will often sue you for the balance due. If you decide not to reaffirm, you’re no longer liable for the car and can keep it as long as you continue to pay, and can surrender at any time without being liable for the difference. The creditor will not report your monthly payments to the credit bureaus in an effort to get you to reaffirm.

- Stone Law Firm