Your Car and Chapter 13 Bankruptcy?

What Happens to Your Car When Filing for Chapter 13 Bankruptcy?

If you are facing bankruptcy you might be worried about whether you can keep your car. There are several options available if you want to retain your car depending on what kind of bankruptcy you decide to file.

There are two ways you may keep your car after filing for Chapter 7 Bankruptcy: redemption and reaffirmation. You may also choose to walk away from the car, which will clear you of any further liability on the debt after your bankruptcy. If you are filing for Chapter 13 Bankruptcy, you are more likely to be able to retain your car. The following article talks about Chapter 13 Bankruptcy and how it relates to your car.
Chapter 13 Bankruptcy

Chapter 13 Bankruptcy allows people to undergo a financial reorganization where you get to keep your property, but you must pay back all or a portion of your debts over a three to five-year period through a repayment plan. As long as you stay current with your car payments and repayment plan, the lender cannot repossess your car.

Automatic Stay

When you file for Chapter 13, most creditors are prohibited from continuing collecting efforts against you. This is called the "automatic stay." The automatic stay also prevents your car loan lender from repossessing your car.

Walking Away From Your Car

Sometimes it would be better to "walk away" from your car if, for example, your car is worth less than the amount that is owed to the lender. If you let the lender repossess the car, they will sell it, and deduct the cost of the sale from the amount owed on the loan. The difference then becomes a part of your unsecured debt and may be paid through your repayment plan.

Car Leases in Chapter 13 Bankruptcy

Similar to car leases in Chapter 7 bankruptcy, you can either assume the lease and continue making the monthly payments, or reject the lease and return the car to the creditor. The creditor will sell the leased vehicle, apply the sale proceeds to your lease balance and then file a claim in your bankruptcy case for the lease deficiency. This deficiency is an unsecured, non-priority claim.

This process is much more detailed than can be contained in this general article. It is best to consult a licensed bankruptcy attorney in deciding the best course of action regarding your vehicle when filing for bankruptcy.

Source: http://ezinearticles.com/6354378

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