If You File Bankruptcy Do You Still Pay for Your Car?
If you file bankruptcy, you have several options regarding payments on your car. Whether you maintain possession of your car after bankruptcy depends on factors such as the state where you live and your intentions regarding the car. If you want to keep making payments, you can usually keep your car.
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Keep Paying Your Loan
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If you want to maintain possession of your car after bankruptcy, you can strike a deal with your lender to keep paying your car loan. Known as reaffirmation, the agreement means that your bankruptcy discharge does not affect your car loan. In other words, you are legally liable for your payments even though your bankruptcy discharge may have eliminated all of your other debts.
Buy Out Your Car
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If you have the money, you can use the bankruptcy laws to retain possession of your car without paying the full amount of your car loan. Since your car acts as collateral for your car loan, your loan is a secured loan. If your car is worth less than your loan, the excess value of the loan is considered an unsecured debt and dischargeable in bankruptcy. If you pay your lender the current value of your car, you can discharge the remainder of your car loan in bankruptcy and maintain possession of your car. After your bankruptcy case, you no longer have to make any car payments.
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Surrender Your Car
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If you do not want to continue making car payments and are willing to give up your car, you can surrender it to the lender. While you will be without a car, if the value of your car loan greatly exceeds your car value and you do not have the ability or the desire to pay it off this may be a viable option. Your bankruptcy discharge will remove you from any legal liability to make any more payments to your lender.
File Chapter 13
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If you file Chapter 13 bankruptcy, you can keep paying for your car without making any special arrangements with your lender. A Chapter 13 collects all of your outstanding debt and compiles it into a payment plan. Over the following three years to five years, you make monthly payments to the court for distribution to your creditors. If you have a car loan, your payments become part of the plan, and you can keep your car. Chapter 13 is particularly helpful if you want to keep your car but have fallen behind in payments. Chapter 13 protects you from your lender while you have the time to catch up on back payments.
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