Bankruptcy and Car Loans: What Happens to Your Vehicle?
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Facing financial challenges is never an easy period. If you are considering bankruptcy, it is important to understand its implications on your car loan. What will happen to your car? Does filing for bankruptcy mean you don’t have to pay your car loan? These are some of the many questions that cross your mind in such situations.
Read on to understand what happens to your car loan if you file for bankruptcy.
The Impact of Bankruptcy on Car Loans
When filing for bankruptcy, the fate of your car loan depends on the type of bankruptcy you file: Chapter 7 or Chapter 13.
Chapter 7 Bankruptcy
With this option, assets that are not exempted are sold to repay creditors. However, Arizona law allows certain exemptions, and in this case, a motor vehicle exemption. This means that you may be able to keep your car if its equity falls within the exemption limits set by the state. The equity is the value of your car minus any outstanding loan amount.
Chapter 13 Bankruptcy
Unlike Chapter 7, Chapter 13 involves creating a repayment plan to pay off a portion of your debts over three to five years. If you are behind on car loan payments, Chapter 13 provides an opportunity to catch up and keep your vehicle. The court-approved plan may include your car loan arrears. This allows you to maintain possession of your car while adhering to the repayment plan.
One option to consider in both Chapter 7 and Chapter 13 bankruptcy is a reaffirmation agreement. This legal document essentially allows you to keep your car and continue making payments on the loan even after the bankruptcy case concludes. When you reaffirm the debt, you commit to the original terms of the loan. The lender agrees not to repossess the vehicle as long as you stay current on payments.
It is important to carefully evaluate whether reaffirming the car loan is in your best interest. This is because it means taking on the full responsibility of the debt post-bankruptcy. Consulting with our knowledgeable bankruptcy attorney in Tucson at Eric Ollason Attorney at Law can help you make an informed decision based on your specific financial situation.
Redemption in Bankruptcy
If the value of your car is significantly less than the amount you owe on the loan, redemption may be a viable option. In a Chapter 7 bankruptcy, redemption involves paying the lender the current market value of the car and getting rid of the remaining debt. While this option requires a lump sum payment, it can be advantageous if the car is worth much less than the outstanding loan balance.
Surrendering the Vehicle
In some cases, surrendering the vehicle may be the most practical option. If you are unable to afford the car payments or if the car’s value is substantially lower than the outstanding loan balance, surrendering the vehicle in bankruptcy allows you to discharge the debt associated with the loan. This option can provide a fresh start, especially if the car loan is a significant financial burden.
Protecting Your Vehicle With Legal Guidance
Our team at Eric Ollason, Attorney at Law, understands the complex dynamics of bankruptcy, especially when intertwined with car loans. We can help you protect your vehicle in such situations. Here is how we can do so;
- A thorough assessment of finances: Our experienced bankruptcy attorneys conduct a thorough review of your financial situation to determine the best course of action for protecting your vehicle.
- Guidance on exemptions: We take advantage of our knowledge of Arizona bankruptcy laws to advise you on utilizing exemptions to protect your car’s equity. Maximizing available exemptions is crucial for safeguarding your vehicle from being included in the bankruptcy estate and potentially sold to repay creditors.
- Negotiating reaffirmation agreements: If reaffirming your car loan is deemed advantageous, our attorneys skillfully negotiate reaffirmation agreements with lenders. We work to secure terms that are favorable to you.
- Expert advice on surrendering the vehicle: When surrendering the vehicle becomes the most practical choice, our attorneys guide you through the process. We ensure that surrendering the car aligns with your overall financial goals and that you can move forward from the bankruptcy process unburdened by the associated debt.
We are Here to Help You
Bankruptcy can be a daunting process, and understanding its impact on your car loan is vital for making informed decisions. If you are considering filing for bankruptcy and unsure of its impact on your car loan, we are here to guide you. Our team at Eric Ollason Attorney at Law will provide the legal expertise needed to navigate available options and guide you towards a more stable financial future. Get in touch with us today.