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What happens to my car loan if I declare bankruptcy?
My finances are a mess and I think bankruptcy is my only option. What will happen to my financed car?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
You will either have to give the car back to the lender or make a new agreement to keep the car.
If you have a car loan and file for bankruptcy, one of two things may happen.
In the event that you
can’t keep up with the payments
, you’ll have to return the vehicle and write a surrender letter
to get out of the car loan. But due to bankruptcy protection, you’ll be absolved of the remaining balance of the loan.Keep in mind that you’ll need to make arrangements to give the car back to the lender. Otherwise, they’ll send someone to your house to
repossess
it.If you want to keep the vehicle, you can do that as well, provided that you have the financial means to do so.
Chapter 13 bankruptcy: You must show that you can pay off the balance in the next three years, courtesy of a Chapter 13 repayment plan.
Chapter 7 bankruptcy: You can keep your vehicle if you’re current on payments, thanks to the law’s motor vehicle exemption. Note that you’ll probably have to sign a reaffirmation agreement, but that’s a normal procedure under Chapter 7 bankruptcy laws.
Good luck as you work through this!
View full answer
- Gregory R.
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