What happens if you file bankruptcy with a car loan?

I have to file bankruptcy, but I have a car loan. What’s going to happen to my car loan? Can I keep my car?

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Answer provided by
Lauren Smith
Digital Publishing Assistant · Answered on Jul 12, 2022
I’m sorry to hear that. I hope things get better soon!
What happens with your car loan when filing bankruptcy depends on which chapter you’re filing.
If you’re filing Chapter 7 bankruptcy, you can:
  • Retain and pay: This is the most common option. Essentially, you and the lender put blinders on and pretend the bankruptcy isn’t happening.
  • Surrender the car: You give the car back to the bank/lender and the loan dissolves.
  • Reaffirm the loan: Lenders prefer this because it means you agree to pay off your car loan later. You’ll want to discuss this process with your lawyer to ensure you fully understand the consequences.
For Chapter 13 bankruptcy, things are a little different. You can:
  • Reduce the principal: This is only an option if the loan is over two and a half years old. You would find out the current value of your car versus how much it was worth originally, and you swap out the principal to reflect the current value.
  • Reduce the interest: If the interest on your loan is high, you can ask for a more reasonable interest rate.
  • Catch up on arrears: Arrears is a legal term for the outstanding loan amount. The amount you still owe and the amount you’re behind are taken into consideration in order to create a payment plan that will help you catch up.
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