Bankruptcy is considered the last option for you in a financial crisis. Different types of bankruptcies apply to various situations. You need to have a basic understanding of them before you decide to file for bankruptcy. Most of the assets under your name, including your vehicle, may be impacted while you undergo bankruptcy.
Filing a bankruptcy case is meant to provide the opportunity for a new start. Bankruptcy exemptions ensure that everyone filing a bankruptcy case can keep their most basic possessions. Depending on the jurisdiction you are planning to file in and the duration you have been living there, you may be able to choose between the federal bankruptcy exemptions and the exemptions granted by your state law.
Available exemption amounts vary from state to state. The federal bankruptcy exemptions are listed in the federal bankruptcy law, referred to as the Bankruptcy Code.
Car loans are considered personal loans. This means that they are secured debts and require collateral. For an auto loan, the collateral is the vehicle itself. When you default on this type of loan, lenders are legally authorized to repossess the collateral on the loan, in this case, your car.
However, transportation through a car is necessary for those dependent on you. If you have recently declared bankruptcy, obtaining an auto loan is challenging but not impossible. There are ways to get approved for an auto loan, even with a Chapter 7 or Chapter 13 bankruptcy on your record.
How to Deal With Your Car Loan in Bankruptcy?
Consider a few ways to consider if you have a pre-bankruptcy automobile loan with an outstanding balance. The following are some examples of what you can do:
- Reaffirm your current car loan;
- Keep the car and continue to make payments on it;
- Redeem the car with a new lender;
- Negotiate directly with the lender; and
- Surrender the car.
Below is a brief explanation of the above examples. For the first option, reaffirm your current car loan. The majority of lenders require that you complete a court-approved reaffirmation agreement. This agreement is essentially a legal, enforceable contract filed with the bankruptcy court and signed by the judge. It contains your promise to repay all or part of a debt that may otherwise have been subject to discharge in your bankruptcy case.
There will be some lenders that will mandate that you sign this agreement before sending any statements or reporting payments to the credit bureau without the court-approved agreement. Failure to comply will result in a breach of the agreement. Meaning if you can sign it, you will be able to keep your car, but you must be certain that you will be able to make payments.
Next, you can keep the car and continue to make payments. Other lenders allow you to keep making payments and not complete a reaffirmation agreement. You can keep your car so long as your payments are current.
Another option is redeeming the car with a new lender. Bankruptcy law allows a car owner to reduce the current car balance to the car’s fair market value.
First, you would need to apply for the loan with the new lender, and that lender will provide a new car loan offer. A judge needs to approve a motion to redeem the car loan. Based on the settlement made with the lender for the new car loan, the judge will decide on the car’s fair market value.
In the end, you may be able to keep the car if you can find a lender willing to offer a new loan and the current lender agrees to the new car loan value. As mentioned above, the process for this procedure is through the court and making sure you have a settlement agreement with the new lender.
Another method is to negotiate directly with the lender. There will be a few lenders that will want to collaborate with you and lower the balance to the fair market value without you needing to redeem the vehicle. Remember, this option may not be applicable from many lenders, but you need to see what best suits your circumstances. Remember that you need to maintain a firm status of the car payments.
You may be able to keep the vehicle if you can keep the payments current. This works the most for the folks who can keep up with their car payments or have exhausted other options to hang on to their vehicle through bankruptcy. If you need to do this option, you can contact the lender directly and communicate your situation. The main priority is to continue with the car payments and demonstrate to them how you plan to ensure that they stay current.
As a final option, you can turn in the vehicle directly to the lender. This is not the most efficient option and could cause you inconvenience. You need to obtain something official in writing that states that you have indeed surrendered the car. While you wait, keep your car insurance current because the car is still in your possession.
You could face more issues if you do not have your car insurance information. If you have financial troubles with a post-bankruptcy-filing car accident, that debt will not be dischargeable in your bankruptcy if it happens after the filing. After you give up the vehicle, the lender will sell it at a price usually lower than the amount you owe.
This is best for folks who cannot find other solutions to keep the vehicle or who may be unable to maintain car payments under any circumstances. You need to have documentation to show that you have surrendered the car according to Bank Rate on personal finance advice.
Can You Get a Car Loan After Bankruptcy?
You can still qualify for a car loan after bankruptcy. However, the interest rates will be higher due to the bankruptcy filing. This can be challenging to afford if you have been experiencing prolonged financial hardships.
You can research more to figure out which lender will have options available for you to use. You may not be able to choose all the terms and conditions based on your preferences regarding lender agreements. Therefore, understanding how you can benefit the most from your situation will be useful.
Remember, it is difficult to purchase a car during an active bankruptcy filing or case. Most borrowers require the court’s permission to take out additional loans during that time. It is recommended to wait until the bankruptcy filing is complete to request another loan. The completion timeline of these bankruptcies will also depend on when you can take out the loan.
Typically, a Chapter 7 bankruptcy is processed anywhere from four to six months, whereas a Chapter 13 bankruptcy can take up to five years to complete. But, even after your bankruptcy file is discharged, some lenders may mandate a waiting period before approving you for an auto loan.
When Do I Need to Contact a Lawyer?
There are ways to keep your car during bankruptcy still. You can consider the options mentioned earlier. The car loan lawyers can assist you in determining what your options are in your situation. Do not hesitate to reach out to a local bankruptcy lawyer to decide what your next steps should be. You can still apply for a car loan after your bankruptcy is complete, as stated earlier.
