One of the main concerns people have when filing for bankruptcy is what will happen to their cars and their car loans in bankruptcy. There are a few options when it comes to your car loan and bankruptcy.
Keeping Your Car
First, you must determine if you can keep your vehicle through bankruptcy. Georgia bankruptcy law allows you to protect up to $5,000 of equity in one or more motor vehicles. Equity in excess of $5,000 may still be able to be protected under Georgia’s “wildcard” exemption. Also, if you are married and filing jointly with your spouse in Georgia, you may double the Motor Vehicle Exemption and protect up to $10,000 of equity in vehicles.
You can determine your car’s equity by subtracting the amount you owe on it from the current fair market value of the vehicle.
Second, if your vehicle does not have too much equity, you must decide if you want to keep your car through bankruptcy. You have the option to surrender, reaffirm, or redeem.
Surrendering Your Car
You can surrender your car in bankruptcy and get out of paying the loan.
There are a few reasons you may decide to surrender your vehicle in bankruptcy:
- As a wise financial decision. If your vehicle is underwater (you owe more than it is worth), or has a high monthly payment you cannot afford, you have the option to surrender the car in bankruptcy. This option allows you to erase the debt, and the lender will not be able to come after you for a deficiency between the amount the car sells for and the amount you owe.
- If the equity in the vehicle is more than what can be protected, then the vehicle can be sold by the trustee and the proceeds paid out to your creditors.
Reaffirming Your Car Loan
If you can afford your monthly car payment and you do not have more equity that can be protected, then it is likely you can keep your car.
Keeping a car with a loan through bankruptcy is quite common. If the specifics of your case allow for this option, then you must continue to make your monthly car payments during and after bankruptcy.
To ensure that your vehicle will not be repossessed after bankruptcy, the U.S. Bankruptcy Code requires you to “reaffirm” your loan during bankruptcy. Reaffirming a debt in bankruptcy means that you are agreeing to be legally liable to pay the debt back after bankruptcy. To reaffirm your car loan, you must sign a Reaffirmation Agreement and file it with the Bankruptcy Court during the course of your bankruptcy case.
You have a limited time to change your mind after reaffirming a debt. You can cancel a Reaffirmation Agreement for up to sixty days after it is filed with the Court or anytime before your Discharge Order is granted by the Court.
Redeeming Your Car Loan
The option to redeem your car loan allows you to buy your car outright from the lender for the fair market value of the vehicle on the day you filed for bankruptcy.
Redemption in bankruptcy allows you to pay the lender of a secured claim the value of the secured property, in a single payment, and get clear title to the property. 11 U.S.C. § 722.
Redeeming your car loan is a viable option if you can come up with the lump sum payment and your car is worth less than the amount you owe on it.
Bankruptcy is a Powerful Tool to Help You Get Out of Debt
Filing for bankruptcy protection is your legal right and offers powerful tools to help you get out of debt and get the fresh financial start you deserve.
Find out more about Bankruptcy in our guide: All About Bankruptcy.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.