Let's explore a Chapter 7 bankruptcy and what happens to your car. If you have recently filed for Chapter 7, you may be asking yourself what will happen with your car. This article will cover some of the options available to you. You may want to speak to your bankruptcy attorney and ask his or her advice before making a decision.
Chapter 7 bankruptcy can also be referred to as "liquidation". This means that through the process of your Chapter 7 versus a chapter 13 bankruptcy you are asking the court to dissolve all outstanding debt that is not secured. This includes such things as credit cards, medical bills and personal loans. If you have a car loan, this is considered a secure loan, there is collateral against the loan.
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So if you have an auto loan during your filing of Chapter 7, you will want to work with your attorney to decide if it is best to keep the loan, or let the debt go with the balance of the bankruptcy. There are actually 4 scenarios to review where your car loan is concerned; redeem, reaffirm, ride-through and surrender. Your attorney can advise which is best for your specific situation.
Let's briefly discuss the four options:
Redeem
With the laws of bankruptcy you have the legal ability to redeem your car. What this means is that if your car loan balance is say $12,000 but the car is only worth $7,000 you have the right to get a new loan for that lower balance.
Reaffirm
Again because of the bankruptcy laws, you have the legal right to reaffirm your existing law. This is a legal document that states you will continue to pay on the car as you have been. The reaffirmation paperwork says that if you default on the loan for any reason, the lender has the right to repossess your vehicle. You will be responsible to pay the difference between what the lender sells the car for and the balance of your loan.
Ride-Thru
Ride-through is where you will continue to pay the loan as it is. There is no legal document reaffirming the loan with this option. You will no longer receive statements because the lender is unable to contact you regarding this debt, again according to the law. Therefore, you will have to act responsibly to be sure and make the payments as usual, on time without notification. If not, you risk the car may be repossessed.
Surrender
Surrender is the choice to give the car back to the lender as one of the debts to be discharged with the bankruptcy Chapter 7. The lender will sell the vehicle for what monies they can get and the balance will be excused with the balance of your debts.
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