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Car loans are just one of the many things a debtor needs to deal with when filing for bankruptcy. There are several strategies to consider when seeking to discharge this type of debt in the most beneficial manner.
Contact us for a free initial consultation to discuss your bankruptcy dispute with an experienced lawyer.
Relinquishing your car before filing for bankruptcy
One option is to relinquish your vehicle to the lender prior to filing for bankruptcy. The lender will then repossess the car and sell it. You will only be responsible for paying off any remaining balance on the loan after the car has been sold. This balance is known as a deficiency balance and can be wiped out in your bankruptcy filing. This choice is a good one if you don’t need the vehicle or really cannot make the payments on it.
Chapter 13 bankruptcy and a car loan “cramdown”
If the value of your car is less than what you owe on it, you may want to consider using a Chapter 13 bankruptcy filing in order to “cramdown” the loan. A cramdown is an option for Chapter 13 bankruptcy only; you cannot use it with a Chapter 7 bankruptcy filing.
As part of Chapter 13, the debtor put forwards a repayment plan to his or her creditors to repay them over a three to five year period. As part of that plan, you can ask the holder of your car loan to accept repayment of only the value of the car as opposed to the balance owed if certain stipulations are met. When the plan ends, any remaining balance will be dismissed and you will own the vehicle outright.
Using a reaffirmation agreement
If you truly cannot do without your car or cannot get rid of it and purchase a cheaper one in its place, you can consider negotiating a reaffirmation agreement with the lender. A reaffirmation agreement is a new contract to maintain a specific debt even though you will be discharging your other debts via bankruptcy.
Prior to executing a reaffirmation contract, you should consider whether or not you really needs the asset with which the debt is associated and whether you can actually afford to retain that debt.
There are three key requirements that a lender should meet before you execute a reaffirmation agreement. Number one: make sure the lender gives you copies of contracts that prove he or she has the right to repossess your car. Number two: make sure that the lender has told you how much you will have to pay to keep your car and over what time period the payments need to be made. Number three: make sure the lender gives you a statement with the redemption value-the amount you would have to pay in cash in order to end the loan and keep the car.
Consult an experienced bankruptcy attorney
There are many nuances of bankruptcy law, and car loans are just one piece of the puzzle. Those seeking advice as to how to deal with car loans and other debts in bankruptcy should contact an experienced attorney who knows the law and can deal with these and other issues effectively. Contact us online or call 518-272-2110 today!