One of the questions we often hear from clients is “what will happen to my car during a bankruptcy?”
You may be able to keep your vehicle, depending upon your filing. Through a Chapter 13 bankruptcy, you can enter into a repayment plan lasting between three to five years. This plan may allow you to work with a lender in paying your outstanding loan balance on your vehicle.
Additionally, when you file for bankruptcy, an automatic stay goes into effect that prevents a lender from taking actions against you. This means that a creditor cannot take or repossess your vehicle.
In a Chapter 7 bankruptcy, you may have to surrender your vehicle. When you file for this type of bankruptcy, you will have to choose whether you want to continue to pay for it or give it up to help you discharge debt. Once you surrender the vehicle, your lender will sell it at auction. The difference between what you owed on the car and the sale price at auction will be included in the debt you discharge, along with credit card debt and medical bills, among other forms of unsecured debts.
Unfortunately, many Americans with poor credit right now are suffering at the hands of subprime auto lenders.
Recently, the New York Times had a story about how the auto loans for people with poor credit have risen by more than 130 percent in the five years since the immediate aftermath of the financial crisis. The paper reported that, “roughly one in four new auto loans last year going to borrowers [was] considered subprime — [approved for] people with credit scores at or below 640.”
This is alarming, because many of these borrowers do not have the financial means to pay for these loans, and lenders are taking advantage of them. When borrowers fail to make payments, lenders, who often have collected thousands of dollars in interest, repossess the vehicles and sell them at auction. After this, they often go after borrowers for the remaining balance.
How Can I Save My Car in Bankruptcy?
As we mentioned earlier, you may be able to save your vehicle from repossession through bankruptcy. Keep in mind, to file for Chapter 7 bankruptcy, you must be able to pass a “means test” that examines your income and helps you decide if you would be able to afford a payment plan agreed upon through Chapter 13 bankruptcy.
If you have any questions about bankruptcy, and how it could help you keep your vehicle, contact our Washington DC and Maryland bankruptcy lawyer now for a free consultation.
Law Firm of Kevin D. Judd – Maryland and Washington DC bankruptcy attorney
Judd’s Judgment: Wells Fargo reported that 17 percent of its auto loans last year involved borrowers with credit scores of 600 or less.