One frequently asked question from potential filers is whether or not they can keep their car…or both cars. It’s a fair question. Generally speaking, the answer is yes, you can keep both cars. When it comes to car loans and bankruptcy, there are five options:
Surrender the vehicle:
Your first option is to surrender the vehicle. You simply return it to the dealer. Don’t forget to get something in writing proving that you surrendered the vehicle. Once a vehicle is surrendered, the lender will sell it. It usually sells for less than is owed on the loan. The remaining amount due should be eliminated in the bankruptcy.
Reaffirm the car loan as is:
About 70% of lenders are going to require that you complete a court-approved reaffirmation agreement (a document filed with the court and signed off by the judge). It’s a legal, enforceable contract stating that you promise to repay all or part of the debt that may otherwise have been subject to discharge through bankruptcy.
Keep the car and keep making your payments:
Some lenders (the other 30% approximately) will allow filers to continue to make payments without completing the reaffirmation agreement. Make sure your payments are current. You might not receive monthly statements after you’ve filed your bankruptcy case so you’ll be responsible for calling the lender to determine when the balance has been paid in full.
Redeem the car loan with a new lender:
According to bankruptcy law, a car owner is allowed to reduce the current car balance in accordance with fair market value. So if you owe $20,000 and the vehicle is only worth $15,000, you could be eligible for a reduction of the total balance owed on the vehicle with a new, post-bankruptcy loan arrangement. Only a few lenders offer this service, but it is possible for a car that is purchased even a few days before filing. For additional details on how to obtain the necessary judicial approval, etc. contact an experienced bankruptcy attorney.
Negotiate changes directly with your lender:
There are a few lenders out there that will work with you to lower the balance due in accordance with fair market value for the vehicle. If your lender will negotiate with you directly, you don’t need to redeem the car. Lenders who are most likely to offer this service are credit unions. If you are interested in this option, inquire with your lender once you’ve filed.
For additional information on how to keep your car when you file for bankruptcy, contact your southern California bankruptcy law experts at Westgate Law.
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