Answers to Bankruptcy Questions for Car Loans

This article provides a series of useful answers to bankruptcy questions with respect to how a car loan will be dealt with by the courts. Any individual declaring personal bankruptcy must now comply with the amended 2005 laws.

A loan for a car is treated differently to medical and credit card debt because it is secured on the car. This means that a creditor has greater powers in the event of the borrower defaulting on the terms of the agreement as the car acts as collateral.

There are a number of different scenarios that can apply; what happens will depend upon what chapter you file under and whether you hope to keep the automobile or not.

What Happens with Respect to a Deficiency on a Repossessed Vehicle?

The vehicle acts as collateral to the creditor. If you hand over the car to the creditor, they are entitled to sell the automobile to recover as much of the outstanding car loan as realistically possible. Whilst this could cover the full amount owed, this is not normally the case.

The borrower is legally responsible for the deficiency; this is defined as the difference between the sale price and the outstanding loan amount. This is likely to mean that you will be pursued by debt collection agencies until the balance is fully cleared.

The good news is that this deficiency can be written-off by declaring personal bankruptcy because you no longer have the vehicle. The debt has effectively changed from being secured to unsecured because the creditor has recovered the collateral. However, they may seek to get a lien against your home. The answers to bankruptcy questions section advises that you file before a creditor applies for a lien against your home.

Can You Keep Your Car When Filing Bankruptcy?

Declaring personal bankruptcy will allow you to reorganize your debt in order to make monthly repayments more affordable. However, if you want to keep the car, you will not be able to write-off any of the remaining debt secured on it. A reaffirmation agreement will need to be signed within 45 days of the 341 meeting. The answers to bankruptcy questions section advises that you agree to maintain your monthly payments on your car loan until the balance is fully paid-off. If this is likely to present a problem, it is better to explore other avenues.

How Will a Co-Signer Be Affected by You Declaring Personal Bankruptcy?

If you file for bankruptcy, the co-signer does not enjoy the same creditor protection that you do. This means that collection agencies can still pursue them for the outstanding balance.

You will have read several of the most common answers to bankruptcy questions. Whilst this bankruptcy FAQ will help to put you on the right track, it is important to consult a qualified attorney before proceeding.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.