After you file for Chapter 7 bankruptcy, whether you end up keeping your vehicle is largely up to you. After your bankruptcy, there are three different things that can happen with the vehicle you own: ride through, reaffirm, or surrender.
Reaffirming the Debt
Although Chapter 7 bankruptcy means all your debts are wiped out, when it comes to a vehicle, wiping out your debt could also mean losing your vehicle. When you go through bankruptcy, you can ask your bankruptcy judge to reaffirm your debt.
What this means is that, basically, the judge will agree to not discharge the debt so that you can keep your vehicle. That means that your loan will stay in-place, and you will have to keep making payments on the loan, in order to retain possession of the vehicle. If you keep making payments, you will be able to keep your vehicle and the lender will not repossess the vehicle.
Asking for a reaffirmation agreement is a good idea, as it allows you to keep making payments and move forward with rebuilding your credit.
Ride Through the Process
Another thing you can do is ride through the loan. That means you don't ask the judge to reaffirm the debt, but you continue to make payments on the loan, even though technically the loan has been discharged.
This works because many banks will not try to repossess your vehicle if you keep paying the debt, even if the debt was discharged. If you are still trying to make good on what you owe, the bank will not take your vehicle back.
This is a little bit of a legal gray area. Technically, the bank could still repossess your vehicle, even though you are making payments, because the courts has discharged the debt and they are legally able to take your vehicle back to settle the debt, especially if you don't have an agreement with the lender to pay the debt.
Surrender the Vehicle
Finally, you just surrender the vehicle to the dealership or lender. That means that you willingly give them the vehicle, instead of them having to come after you. This is a good option if you are really upside down in the car loan and don't have a lot of equity built-up in the car loan. If continuing to pay the car loan will not help you get to a better financial footing, it may make more sense to give the vehicle back to the lender.
Before deciding what to do with your vehicles that are under loan while going through bankruptcy, you need to determine if it is in your best interest to surrender the vehicle or keep paying the car payments. For more information, call an attorney like David M. Todaro Co., LPA.
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