Can You Keep Your Financed Cars When You File for Bankruptcy?
A person needs to carefully assess his income and debts prior to filing for bankruptcy. If he wants to retain his financed cars and determines that the car loans are affordable, it is possible to keep the cars when certain conditions are fulfilled. The options available to debtors who want to keep financed cars vary depending upon whether the debtor files for Chapter 7 or Chapter 13 bankruptcy.
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Reaffirm the Car Loan
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Chapter 7 debtors can reaffirm the debt for the car. Essentially, the debtor signs a contract stating that the remaining balance owed for the car will not be discharged in the bankruptcy. The debtor needs to keep making regular payments according to the terms of the reaffirmation agreement. If the debtor becomes delinquent, the car may be repossessed and the creditor may attempt to collect the remaining portion of the debt. The debtor should decide if keeping the car is in his best interest and make sure the debt will not pose undue burden. The debtor has the right to cancel a signed reaffirmation agreement within 60 days after filing the reaffirmation agreement with the court or before a discharge is granted, according to 11 U.S.C. §524(k)(3).
Redemption
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Redemption allows the Chapter 7 debtor to pay off the secured portion of the debt in full to the creditor during the bankruptcy. Debtors filing for bankruptcy are not usually in a position to pay off the secured portion of the car loan in one lump sum. Typically, debtors have to find a lender who will agree to pay off the secured portion of the debt to the original creditor. Debtors may choose this option if they can find more affordable payment terms with another lender. A motion to redeem the property needs to be filed with the bankruptcy court and approved, as stated in Federal Bankruptcy Procedure Rule 6008.
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Chapter 13 Plan
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When a Chapter 13 debtor decides to keep a financed car, he has to continue making regular payments as agreed in the loan contract throughout the tenure of the bankruptcy. The debtor's intent to retain the car and make payments needs to be reflected in the Chapter 13 plan. If the debtor was delinquent with car payments prior to filing for bankruptcy, the delinquent amount must be listed in the Chapter 13 plan and will be included in the monthly trustee payments. If the debtor stops making payments during the bankruptcy, the creditor can file a motion for relief from automatic stay. Once the motion is granted, the car is no longer under protection of the bankruptcy and can be repossessed.
Cram Down
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The Chapter 13 debtor can file a "cram down" motion with the bankruptcy court. This means the debtor will pay off the secured portion of the car during the bankruptcy. The secured amount is based on the fair market value of the car. The remaining unsecured portion of the debt will be discharged upon completion of the bankruptcy plan. The car loan must have been in effect at least 910 days prior to filing for bankruptcy in order to utilize this option.
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References
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