Wednesday, October 24, 2012

Can I Keep My Car In Bankruptcy?

Can I Keep My Car In Bankruptcy?
Posted on October 24, 2012  King and King Bankruptcy Attorneys

With the economy in trouble like it has been for the past few years, you have probably heard or even know people that have pursued bankruptcy to ease the financial burden of an underwater mortgage (owing more on a mortgage than it is actually worth).

A similar question that is becoming more and more common is whether or not people can use bankruptcy as a release for the financial burden of an underwater auto loan. While each situation is considered unique and therefore could provide different outcomes, if you are facing an underwater car loan there are a few potential bankruptcy options that you can explore with your bankruptcy attorney.

Chapter 7 Bankruptcies

Chapter 7 bankruptcies provide several options for debt relief, including some that may allow you to keep your car. As always, your options will depend on your specific situation. Here are a few options under Chapter 7:

Surrender the vehicle
Surrendering your car is an option to reduce the burden of auto payments and insurance. However, this is not a viable option for most people since they need their transportation to get to and from work.

Redeem the loan
Through judicial approval, you may be able to reduce your car debt to the fair market value. In other words, if your loan balance is $8,000 and your car is only worth $4,000 you may be able to reduce the balance of the loan by $4,000. Depending on your situation, your payment requirements may be either monthly payments or a lump sum payment. There is often a tradeoff of higher interest charges, so it’s important to run the numbers to see if a redemption will help you.

Chapter 13 Bankruptcies

In Chapter 13 bankruptcies, your options are different. You may choose to keep the car and have it rolled into your bankruptcy, where you will pay some portion–often a fraction–of the balance as part of your payment plan. If you’ve owned your car for more than two and a half years, you may qualify to have your outstanding balance adjusted to Fair Market Value and stretch the payments out over the life of the bankruptcy. In some cases, you may be able to keep your car and pay off your debt for a very modest monthly payment.

As you can tell, there are many choices in bankruptcy when it comes to your auto loan. If you want to keep your car, it’s important to get expert advice. If you are exploring the possibility of filing for bankruptcy, schedule a free consultation to learn about your options with an Atlanta, Georgia Bankruptcy Attorney, by calling 404-524-6400. Contact us today.