Many Americans finance their vehicle purchases. It is much easier to work a monthly payment into your budget than to try to gather the funds for an outright purchase of a vehicle. You can obtain a better quality vehicle with financing because you will have more options.
Getting a car loan can be a relatively simple process, but staying up-to-date on your payments can eventually be a challenge. If you lose your job or have other unexpected financial hardships, you may worry about how you would pay your bills and whether you will lose your financed property, like your vehicle.
Until you fully pay off your vehicle loan, you are always at risk of the lender repossessing it. If you decide to file for personal bankruptcy as a way to reduce your overall debt and regain control over your finances, what will happen to your vehicle purchased with a loan?
You can renegotiate the loan
If you file for Chapter 13 bankruptcy, you can potentially work with your lender to make your vehicle loan more favorable for you. They may agree to reduce your monthly payment amount, extend how long you have to make payments or move your missed payments to the end of the loan instead of making them due immediately. Any of those modifications can help you keep your loan and your vehicle.
You can reaffirm the existing loan
In a Chapter 7 bankruptcy where you won’t have court support for renegotiating debts or when you have not fallen behind on your payments, you may only need to reaffirm your loan to keep your vehicle and maintain the same financial arrangements. Reaffirmation allows the loan to persist through the bankruptcy and will permit you to keep the collateral property even after your discharge.
You can give up the vehicle and discharge the loan
If you simply cannot negotiate a modification agreement with your lender or fit the vehicle payments into your monthly budget, you may need to allow the repossession of the vehicle and end the loan during your bankruptcy.
Performing an honest financial review and understanding the options available to you can help you make the right choice regarding your car loan in your upcoming bankruptcy.