Chapter 7 Bankruptcy can allow you to never pay your car loan ever again. You could then have a paid-in-full car, right? Unfortunately, this is not allowed in most cases. In most cases, you will need to keep paying your car loan after bankruptcy in order to keep the car. That is the default in bankruptcy: pay the loan or give the car back. But, can you ever just file bankruptcy, get rid of the loan, and keep the car too? Yes, you can, but only in very limited circumstances.
You can almost always keep your car loan by just continuing to make the payments. This allows you to both keep the car loan and your car through the Chapter 7 bankruptcy. The most important part is to keep making your payments.
You will also need to decide if you want to make a new loan agreement on the vehicle, called a “reaffirmation agreement.” If you want a new, official loan agreement (a reaffirmation), then you will need to have the agreement finalized before the end of your bankruptcy case. This takes the cooperation of multiple parties, including you, your creditor, your attorney, and the court. You can probably keep your car with or without a reaffirmation agreement in most cases. There are “pros and cons” both ways.
You can get rid of your car loan and your car easily in Chapter 7. You simply need to express your intent to “surrender” the vehicle on the bankruptcy intention. Your responsibility on the vehicle will be discharged when the case is completed. You will be required to return the vehicle (either by turning it in or allowing it to be repossessed). You usually will give the vehicle back either during the bankruptcy case or within a few months after the case has been fully completed.
In some rare cases, creditors will not come to pick up a car. In other cases, a car may not be of exceptionally high value. You may be able to “redeem” the car in such rare cases. In rare cases, you might be able to file a “Motion to Redeem” the vehicle. If the vehicle has no value to the creditor or questionable value, you might be able to redeem the vehicle for only $1, $100, or some other smaller amount. Once the motion is granted, you will be able to give the creditor the same amount (such as $1 or $100). The creditor will then give you a copy of the title, free and clear. You will then have a paid-in-full car.
Keep in mind that these situations are rare. Creditors could also object to the Motion to Redeem in some cases. In addition, a redemption action may not be included in your basic bankruptcy case representation. Your attorney and the court may have an additional charge. But, keeping that all in mind, redemption is a valid way of dealing with some vehicles where the title needs to be released. Some vehicles are either too old or creditors are too disinterested for repossession to occur. This is when redemption may become a good option in Chapter 7 bankruptcy.
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