Bankruptcy affords numerous opportunities to keep your vehicle. This is important, because you need your car to get to work, pick up your kids, and in general get around a town that doesn't have great public transportation. However, just because you can keep your car in bankruptcy doesn't mean that you necessarily should.
Bankruptcy allows you to keep your vehicle as long as you can show that you can afford the payment. In Chapter 13 bankruptcy, you can even catch up on arrears owed and/or stop a repossession. The arrears can be made current over the three-to-five year repayment. So, in most cases, a car can be retained. However, there are situations when you should consider surrendering it through the bankruptcy.
The most common situation for surrender is when the arrears are too great to pay. If you qualify for a Chapter 7, and there are arrears on your vehicle, you would need to file a Chapter 13 bankruptcy to keep it. Chapter 13 bankruptcy is more expensive and time consuming that Chapter 7 bankruptcy, and it just might not be worth it. You can walk away from your obligation in Chapter 7, which may be an attractive option. When you walk away from a car in Chapter 7 bankruptcy, surrendering it to the creditor, your financial obligation is wiped away. You will not owe any deficiency.
An important point will be how much you owe versus what your car is worth. If you owe $20,000 and an additional $5,000 in arrears, but your car only has a Blue Book value of $15,000, it might not make sense to keep such a high payment for such a low-value car. If it is your only vehicle, and you absolutely need it to get to work, and there will be no other way to finance a vehicle in the future, you may need to bite the bullet and keep it. But, if you can use a spouse's or parent's vehicle, or take public transportation, bankruptcy might be a good opportunity to get away from the payment. It will depend on your particular circumstances.
I meet with many clients struggling with large car payments who, upon learning they can get away from the vehicle obligation, are happy to do so. Large car payment weigh my clients down. And cars only depreciate in value. It will not be very difficult to get financing on a more modest vehicle after filing your bankruptcy.
One situation where it probably makes sense to keep the car is when you must file a Chapter 13 bankruptcy that repays your unsecured creditors in full. In these cases, if you surrender a car, you will have to repay the deficiency on the car loan (unlike in a Chapter 7 bankruptcy). It doesn't make much sense to pay for a car you no longer possess, so keeping it is more likely your best option.
So what should you do? Contact us to set up a free consultation to discuss your automobile situation. I will be happy to sit down and review your case in detail. The monthly payment, your future prospects, and the condition of the vehicle should be considered. Your circumstances will probably dictate what you should do, but the decision will always be yours.