Should You File Bankruptcy Before or After Your Car Is Repossessed?
The answer largely depends on whether you want to keep your car or are ready to let it go. Understanding your financial goals and bankruptcy options can help you make the best decision for your situation.
Key Considerations Before Filing Bankruptcy
Do You Want to Keep the Car?
- Yes: Filing bankruptcy before repossession can help you protect your vehicle.
- No: You may file either before or after repossession without significantly affecting the outcome.
Your decision impacts how the car loan and related debts are handled during bankruptcy proceedings.
Options if You Want to Keep the Car
To retain your vehicle, filing bankruptcy before repossession is often essential. Here’s why:
- Automatic Stay Protection:
Filing bankruptcy triggers an automatic stay, which halts repossession efforts by the creditor. - Chapter 7 Bankruptcy:
- You may be able to reaffirm the loan by agreeing to continue making payments.
- If the car loan terms are unfavorable, a redemption option allows you to pay the current value of the car rather than the full loan balance. (This option requires access to a lump sum of money).
- Chapter 13 Bankruptcy:
- You can include the overdue payments in your repayment plan, spreading them out over 3-5 years.
- This approach can make it easier to catch up and keep the car.
Options if You Don’t Want to Keep the Car
If you’re ready to part with the vehicle, timing the bankruptcy filing is more flexible:
- Before Repossession:
You can surrender the car during bankruptcy. The loan balance after the car’s sale will be discharged as an unsecured debt. - After Repossession:
Filing bankruptcy eliminates any remaining debt on the loan, known as a deficiency balance. This means you won’t owe the creditor the difference between the car’s auction price and the loan amount.
Other Factors to Consider
- Working Directly with the Creditor:
If your debt is relatively small, you might consider negotiating directly with the creditor to avoid filing bankruptcy. Be sure to get agreements in writing and understand potential tax consequences if any debt is forgiven. - Means Test and Bankruptcy Chapter:
Your income and expenses determine whether you qualify for Chapter 7 or Chapter 13 bankruptcy. This also influences how your car loan and other debts are handled.
How Bankruptcy Filing Works for Car Loans
When you file for bankruptcy, your intentions regarding secured assets like vehicles are made clear in the court filings:
- Chapter 7: Declare the car as “surrendered” in your Statement of Intention if you don’t plan to keep it.
- Chapter 13: Outline your intention to surrender the vehicle in your plan.
Once your bankruptcy case is filed, the Automatic Stay takes effect, preventing creditors from pursuing further collection efforts.
Get Expert Guidance on Timing Your Bankruptcy Filing
Determining whether to file bankruptcy before or after a car repossession requires careful consideration of your financial goals and situation. Consulting an experienced bankruptcy attorney ensures you choose the best path forward.
Schedule a consultation with our Kansas City bankruptcy attorneys today to explore your options and create a strategy that works for you.
Questions to Discuss:
- Are you struggling to catch up on car loan payments?
- How would eliminating your car loan debt help your finances?
- Is keeping the vehicle critical to your household’s needs?
Let us help you navigate this challenging time with confidence.
