Do I Have to Surrender My Car in Chapter 7 Bankruptcy?

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If you surrender your car as part of your Chapter 7 bankruptcy, any debt that you owe on it will be eliminated when you receive your bankruptcy discharge.

Personal vehicles: Luxury or necessity?

Filing for bankruptcy is a stressful process, and the most stressful part of it is deciding how to handle your personal properties and any debts you might still have. One of those possessions is most definitely your vehicle, as you may not be able to pay off the debt on your car, and life without it can become exceedingly difficult. Nowadays, having a car is not just a status symbol, it is an absolute necessity.

If you live in the suburbs, life without a car is fairly challenging. Trivial things like driving your children to school, commuting to work and going shopping can prove impossible without your personal vehicle. When you weigh the payments for the car and life without it, the first one definitely seems like a lesser evil.

Luckily, filing for bankruptcy does not necessarily mean that you have to give up your vehicle. It is possible to keep it even if you file for bankruptcy and this largely depends on the type of bankruptcy you are filing for. Consult an experienced San Diego bankruptcy attorney for professional advice.

If you are filing for a chapter 13 bankruptcy


In case of a Chapter 13 bankruptcy borrowers are given the option of restructuring their debts into a payment plan. What this means is that your loans will be repaid, although they might be restructured depending on the age of the vehicle.

If the vehicle loan is older than 910 days, courts may consider reducing the debt depending on the vehicle’s current market value. So if you have a loan on an older car, it might just be lowered. If you have a newer vehicle, you will have to pay the full value, although possibly at a lower interest rate.

If you are filing for a chapter 7 bankruptcy

f you file for a Chapter 7 bankruptcy, you have a few options ahead: to reaffirm your debt, redeem the car or to surrender the vehicle. Should you choose to reaffirm the debt, you will continue paying the vehicle off in order to keep it.

You will have to sign an agreement to pay for it despite filing for bankruptcy. However, there is a reasonable risk that you may not be able to pay it off and find yourself back at the beginning.

The second option is to redeem the vehicle, in which case you need to pay off the rest of the debt in order to redeem your car. However, due to your increasingly difficult financial situation, this option might prove to be the most difficult one.

The third and final option is to surrender the vehicle. If you decide that you do not want to or cannot pay off the vehicle debt, you can return it to the vendor. If you rely on the vehicle heavily, this option may sound horrible, but it might just be the best option if you realize that you cannot pay off the remaining debt.

In this case you might just be able to buy a new, less expensive vehicle if you save up the money you would have used to pay your previous one off.


What Is the “Motor Vehicle Exemption” in Bankruptcy?

The “motor vehicle exemption” in bankruptcy allows you to protect a certain amount of equity in your car when you file bankruptcy. The exemption limit varies by state and is designed to prevent the bankruptcy trustee from selling your car to pay off debts like medical debt or utility bills.

If you own your car outright and its current value is below the exemption amount, you can typically keep your car during the bankruptcy case. If the car’s value exceeds the exemption limit, you may need to pay the trustee the difference in a lump sum or through a debt repayment plan.

If you surrender your car as part of your Chapter 7 bankruptcy, any debt that you owe on it will be eliminated when you receive your bankruptcy discharge. Consulting an experienced bankruptcy attorney can provide specific guidance tailored to your situation.


How Does Bankruptcy Affect Co-Signed Car Loans?

When you have a co-signed car loan and you’re filing bankruptcy, the implications can be complex. The automatic stay that comes into effect upon bankruptcy filing halts most creditor actions, but the co-signer on your auto loan is not protected by this.

The lender can still go after the co-signer for the full amount of the car loan unless they are also included in a bankruptcy case.

If you opt for Chapter 7 bankruptcy, the car loan may be discharged, relieving you of the obligation but leaving the co-signer fully responsible for the debt. In a Chapter 13 bankruptcy, you can include the car loan in your debt repayment plan, which may offer some protection to the co-signer.

However, failing to stick to the repayment plan can result in the lender repossessing the car, which will also negatively impact the co-signer’s credit report.

In both scenarios, the best course of action for protecting both parties is to consult an experienced bankruptcy attorney. They can guide you through the options available, whether it’s to surrender your car, continue making payments, or negotiate new car loan terms that are manageable within the context of your bankruptcy.

Are you looking for a professional San Diego bankruptcy attorney?

If you are filing for bankruptcy in the San Diego area, contact Bankruptcy Lawyers Chang & Diamond for a legal consultation. We are passionate about helping our clients obtain debt relief and will come up with the best way to help you pay off your debt and reclaim your home or vehicle. Whether you are facing a Chapter 7 or Chapter 13 bankruptcy, contact our agents for a free consultation through the form on our website or by calling (619) 312-4900 or (800) 718-8118 toll free.

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