Can I Surrender My Car When I File for Bankruptcy?

July 27, 2016

Can you surrender your car when you file for bankruptcy?  The answer is “Yes.”  You can surrender vehicles during bankruptcy.  Surrendering your car or truck during bankruptcy can greatly assist in your total economic recovery.   Let’s talk about how and why you would surrender your vehicle during bankruptcy.

In Chapter 7 bankruptcy, you must prepare a “Statement of Intention.”  This statement declares what you want to do with all “secured” loan items such as house and car loans.  On this statement of intention, you would need to list your intention as “Surrender.”  Then you can give back your automobile and not be required to repay the debt.

In Chapter 7, all of your debts are “discharged” which means that they are forever eliminated.  Therefore, you will never be required to repay the balance of the loan (after the automobile creditor sells the vehicle).    You will have to give the vehicle back to the lender in a timely fashion.  Even though you are protected for a time by the automatic stay in Chapter 7, you should still make arrangements during the case to give the car back to the lender.  If you do not make these arrangements, your auto creditor may forcefully repossess the car at an inconvenient time and place after the automatic stay protections stops.

In Chapter 13, you can also choose to “Surrender” your automobile through a section in your Chapter 13 plan.   Chapter 13 works very similar to Chapter 7 cases except that you may be required to pay a portion (or in rare cases the entirety) of the balance that remains after the automobile is sold by the lender.  The auto lender may amend their “secured” claim in the case to an “unsecured” claim to allow them to participate in the Chapter 13 pay-out.  In every case, surrendering an automobile in Chapter 13 requires much less (or virtually no) payback because the unsecured debt will be less than the original debt and will not require the payment of interest.

If you are stuck in bad automobile loan, surrendering the vehicle back to the lender during your bankruptcy filing can be very advantageous.   By getting out of a bad automobile situation, you will have a much better overall recovery.   Surrendering the vehicle may also give you the chance to be truly debt free: you will have a complete fresh start to build upon.

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