Would filing for bankruptcy get me out of a car loan?

When filing for bankruptcy under Chapter 7, you have three options regarding your car loan:

1. Surrender the vehicle—Contact the lender and let them know you wish to turn the car in.  Make sure you get something in writing from the dealer stating that you surrendered the vehicle.  The amount of the remaining debt will be discharged in bankruptcy.
2. Reaffirm your current car loan—Many lenders will offer you the choice to reaffirm your auto loan.  However, if you fail to make payments after your bankruptcy is discharged, and the lender repossesses the vehicle, they can sue you for the remaining balance.
3. Redeem your car loan with a new lender—Bankruptcy law permits the owner of a car to reduce the loan balance to the fair market value.  If you currently owe $15,000 and the current market value is only $10,000, you can reduce your loan by the difference and apply for a new loan.

For debtors filing Chapter 13 bankruptcy, there are a couple of important things you should know that will determine how your car loan will be handled:

• If you bought you car within 910 days before filing for bankruptcy, you will be required to pay the full value of the loan.
• If you purchased your car more than 910 days before bankruptcy, the bankruptcy court will only demand that you repay the car’s current fair market value.

Whatever option you choose, consulting an attorney who specializes in bankruptcy law can help with your decision.

Talk to a Bankruptcy Lawyer to find out if bankruptcy is the right option, or if other alternatives would be better for you.