Chapter 7 bankruptcy provides an opportunity for individuals to resolve some or all of their debt, including auto loans and leases. For those who own a car, surrendering it could help to eliminate some debt, improving your financial circumstances. However, there are a few key things to learn about the process.
How Can Chapter 7 Bankruptcy Help You Surrender Your Car?
Chapter 7 provides vehicle owners with an ability to get out from under a debt they can no longer pay or no longer want to pay. This means it allows you to surrender – or give up – your car so you no longer have to keep making payments on it. Once you file for bankruptcy, an automatic stay goes into place. At this point, you no longer have to keep making payments on your car. Your bankruptcy attorney will tell you if you will need to repay your debt at all. In most cases, the debt is forgiven.
Should You Give Up or Keep the Car?
In some situations, individuals want to give up the asset they own during bankruptcy, including vehicles of all types. This includes cars, trucks, recreational vehicles, collector’s vehicles, and any other style. For example, you may have a car you owe money on. You are still repaying the loan, but you do not want to keep doing so after the bankruptcy. It is possible, then, to surrender the car as a part of the Chapter 7 bankruptcy process. In doing so, the bankruptcy administrator takes possession of the vehicle, sells it, and distributes the funds to the listed creditors.
Key Advantages of Surrendering a Car
Making the decision to surrender a car takes careful consideration. There are a few advantages and disadvantages to doing so.
Stop Making Loan Payments
One of the most important benefits of surrendering a vehicle is you no longer have to make payments on it. You do not owe anything to the lender once the bankruptcy is complete. If you don’t need the car, this offers a key solution. It also eliminates the risk of auto repossession.
The Car’s Value Is Lower Than What Is Owed
For those who own a vehicle that is not worth as much as owed on it, this can provide an opportunity to get out from under an underwater debt. If you could not sell the car to recoup enough to pay back what you owe, this is an option.
Get Out of a Lease
For those who lease rather than own the vehicle, the same rules apply. It is possible to turn the leased vehicle back into the dealership. In doing so, you do not have to pay any excess mileage on the vehicle, fees for wear and tear, or other costs associated with the lease. Again, if the vehicle is facing excessive costs, this makes financial sense.
Improve the Budget Flexibility
Perhaps the most important reason to do so is to clear away the expense. The goal of bankruptcy is to make it easier to meet your financial goals and to be financially stable. If the existing car loan would make it difficult for you to make your home loan payment, for example, getting rid of it is beneficial. It’s important to plan for your financial situation after bankruptcy.
The Disadvantages of Surrendering a Car
Surrendering a vehicle has drawbacks, most importantly the loss of transportation. You no longer get to keep the car. It also means obtaining a new car may be a bit more difficult. Bankruptcy will make it harder to obtain a new car loan right away. And, when you do qualify, the loan will likely have a high-interest rate. Your credit score is likely to drop for some time after filing for bankruptcy.
What Should You Do Next?
When filing bankruptcy, your attorney will discuss your vehicle with you. Tell our attorney you want to surrender it. The Statement of Intention for Individuals Filing Under Chapter 7 Bankruptcy document is then completed. The court then must approve the repossession of the vehicle by the current car loan holder. The creditor is then able to sell the vehicle at auction to recoup its investment.
For those who own a vehicle with a cosigner, the situation is a bit different. The cosigner remains legally responsible for the balance of what is owed after the car is auctioned. For example, if you owe $3,000 on the vehicle and the creditor sells it for $2,000, the cosigner may be responsible for the remaining $1,000. Stipulations may apply.
Thinking About Filing Chapter 7?
Making the decision to file Chapter 7 isn’t want to take lightly. This is even a bit more challenging when you wish to surrender your vehicle. Investing in the right professional help ensure you follow the process required under bankruptcy law.
Contact us to learn more about your options, concerns, and how you may be able to keep or surrender your car during bankruptcy.