Can I Get Rid of an Unwanted Car in Chapter 13?
You must propose a repayment plan when you file a Chapter 13 bankruptcy case. If you have a motor vehicle and you still owe money on the vehicle, your Chapter 13 plan must propose to either pay the vehicle in full through the plan, pay for the vehicle yourself outside the plan or surrender the vehicle to the lender. If you are paying for a car you no longer want, you can surrender it.
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Pay for the Car Through the Plan
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If you want to keep a vehicle and you are still repaying the loan, you must pay the loan through the Chapter 13 plan if you are behind on the payments. Your plan must propose to pay the loan in full by the end of the plan with a modified interest rate. If you bought the car more than 910 days prior to the date you filed your bankruptcy and the loan is the loan you used to buy the car, you are only required to pay the value of the vehicle with interest, and the remaining balance is paid the same percentage as your unsecured creditors.
Pay for the Car Outside the Plan
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If you are current on your car payments, you can propose to pay for the car yourself outside of the Chapter 13 plan. Your Chapter 13 plan payments will be lower so that you can afford the car payment on your own. You may also pay the car through the plan if you are current, but it is not required.
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Surrender the Car
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If you are paying on a vehicle and you no longer want the vehicle, your plan can propose to surrender the vehicle. The creditor will receive permission from the court to repossess the vehicle and sell it.
Effect of Surrender
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Once you surrender your car and the creditor sells it, the creditor will have an unsecured claim for the deficiency balance. The deficiency balance is the difference between what you owed on the car and the amount the creditor sold it for. The creditor will receive a percentage of that deficiency balance equal to the percentage received by your other unsecured creditors.
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