Filing for bankruptcy doesn’t mean you’re going to lose everything.
In fact, filing bankruptcy is a great way to protect yourself and your assets. In many cases, this legal status will even let you keep a property on which you’re still making loan payments.
One of the biggest questions people have when considering bankruptcy is: What will happen to my car loan and, by extension my car, if I declare bankruptcy?
The good news is you might not have to lose your vehicle, but you still may want to.
Why would anyone voluntarily surrender their vehicle?
Getting rid of your vehicle just before undertaking the task of rebuilding your finances may seem counterintuitive. But a lawyer can help you see the potential costs and benefits of such a move.
You may want to voluntarily surrender your car if you don’t qualify for a “cramdown” (more on that in a minute) and you don’t want to or are unable to afford to add your car payments.
What happens if I voluntarily surrender my vehicle to the bank?
If after consulting with an attorney you decide that you do not want to or don’t have the financial ability to keep paying on a car loan, you can return the vehicle to the bank. The bank will then sell the car. The sale is applied to the loan’s debt. If money is still owed on the loan at this point, it becomes unsecured debt which can be discharged in your bankruptcy so that you don’t have to pay it.
Voluntary surrender is preferable to simply stopping payment because of the interest, fees, and repossession costs that will accrue due to nonpayment.
How do I “cramdown” my car loan in a Chapter 13 bankruptcy?
In Chapter 13 bankruptcy, to “cramdown” or reduce the loan on a vehicle on which you’re still making payments to the bank, there are several criteria you must meet:
- You have owned the vehicle for at least 910 days (about 2.5 years)
- The current value of your car is less than what you owe on the vehicle (you have negative equity)
- Future payments are included in your Chapter 13 court-approved repayment plan
In this situation, you also likely qualify for a “cramdown,” a reduction in the amount due to the bank that better reflects the value of the vehicle. For instance, if you have a vehicle worth $12,000 and you owe $15,000 on it, under a Chapter 13 cramdown the new amount you would owe to the bank would be $12,000.
Our law firm can guide you through every step of the process
An experienced bankruptcy lawyer can help you make the best decisions for your current and future situations. The attorneys at Benjamin R. Matthews & Associates, LLC have been helping South Carolina residents plan for their financial futures since 1985. Each lawyer is loaded with knowledge about local, South Carolina, and federal financial and estate law. A member of our team can help you understand whether keeping your car will help or hurt you.
With office locations in Columbia, Florence, and Rock Hill, South Carolina, our law firm offers free initial case evaluations to people considering bankruptcy. The conversations are confidential and there are no obligations. Contact us today to find out more.