Can Bankruptcy Help Me Save My Car?
Bankruptcies can and often do help people save their cars. While each situation is different there are several fundamentals to remember. First, a car loan is a secured loan. Basically, if you don't make your car payment, the lender who has a lien on your car will be able to take it from you, sell it, and sue you and collect any deficiency owed between what they sold the car for and what you owed on the loan. A bankruptcy can, however, stop a repossession and sale even if the car has been taken.
The changes in the Bankruptcy Act in 2005 strengthened the lenders hand. Car owners lost the ability to "cram down" car values. One of the biggest concerns in the current financial crisis is the fact that most people owe far more on their car than it is worth and their car payments are based on the high loan not the value of the car.
If you are current on your car payment, you can keep your car in either a Chapter 7 or Chapter 13, except in some extreme circumstances. Still, if the payments are way too high, you can in the bankruptcy proceeding abandon your interest in the car and discharge the debt. If you are behind in your car payments, the arrearage can he paid in a Chapter 13 Plan over a number of months or years, if you can make the monthly payment. In a Chapter 13, if you purchased your car 910 days before filing the bankruptcy and you owe more on your car than it is worth, you may also be able to reduce your payment and only pay on the true value of your car, not on the inflated loan amount.
The bankruptcy law gives Debtors with secured debt (particularly In a Chapter 7) three choices. These apply to almost all secured loans. With cars you can abandon your car, you can reaffirm the car debt and take it out of the Bankruptcy; and/or you can redeem your car, paying off the old lender with a new loan and payment from a new lender. This is a specialty loan with many rules and complexities. All of the above impact the discharge of your debts in bankruptcy whether in a 7 or 13. Since the primary reason you do a bankruptcy is to discharge your debts, we seldom recommend reaffirming your car loan, i.e., taking it out of the discharge.
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Contact bankruptcy attorney C. David Ward or Joseph D. Lovelace for a consultation today.
Illini Legal Services is engaged in the private practice of law and is not a public legal aid agency. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
