If you only have a year or two left on your vehicle loan, keeping it in bankruptcy may be a good choice. Even if the vehicle loan is upside down, you may come out ahead financially if you avoid buying another vehicle.
Will The Lender Require You To Reaffirm The Debt?
Debt reaffirmation during bankruptcy can be tricky. If you reaffirm your car loan, you will be required to pay it off after bankruptcy and failure to do so could end in repossession . Fortunately for most debtors, car loan lenders often don’t require reaffirmation agreements during bankruptcy. As long as the debtor continues to pay their loan after bankruptcy, the lender will allow them to keep the car. However, for bankruptcy debtors severely upside down on their loans, the value of keeping the vehicle may not outweigh the trouble of loan payments and repairs if they car is not in good condition.
Are You Filing Chapter 13 Bankruptcy?
If a debtor is filing Chapter 13 bankruptcy , they may be able to “cram down” their vehicle loan so that it matches the true value of the vehicle. Some bankruptcy trustees may rule that the portion of the car loan not covered by the value of the vehicle is unsecured, allowing the debtor to only pay the secured portion of the loan while discharging the rest. In order for this to work, the debtor will need to complete their Chapter 13 bankruptcy repayment plan which can last anywhere between 3 to 5 years. At the end of their repayment period, any unpaid unsecured debt will receive a bankruptcy discharge.