Something that many people wonder when they file bankruptcy is how the filing will effect a car loan that exists at the time that the bankruptcy is filed. It is a natural question, and one that is highly important in the context of ensuring that you are able to keep your vehicle after the bankruptcy is filed. Ultimately, the treatment of the car loan will depend on the chapter of bankruptcy that you file, but in most circumstances you will be able to retain the vehicle and continue to make payments on the related loan.
This naturally leads to the question of whether the vehicle loan will be paid directly to the lender, or whether it might instead be paid through the course of the bankruptcy process itself. Both are possible depending upon the chapter of bankruptcy being filed. In a Chapter 7 bankruptcy, the loan would typically be paid to the lender directly, both while the bankruptcy is pending, and afterwards after the discharge has occurred. Conversely, in a Chapter 13 bankruptcy you may electively choose to either pay the lender for the car directly, or to have the payments processed by the bankruptcy trustee who will then pay the lender directly themselves.
Each of these options can be beneficial to the person who is filing, and they impact the bankruptcy in different ways. In either instance however, the end result is that the car loan can continue while the bankruptcy is ongoing and the vehicle can be kept by the owner.
In certain circumstances, a car loan can even be paid off for less than its face value through the bankruptcy process! In a Chapter 13 filing, a car loan can typically be paid off by building in the cost of the car loan into the payments made to the trustee, who will then in turn make ongoing payments to the lender for the car loan. If the car loan was taken out at least 910 days prior to filing, it may be subject to something called a “cram down” which essentially allows the vehicle to be paid off based on its fair market value rather than based on the total amount that is owed on it on the date that the bankruptcy is filed. Additionally, in certain situations you can also reduce the amount of interest being paid on the vehicle in this way as well!
Fundamentally, the bankruptcy process seeks to provide people with relief from creditors, debt, and the collections process. In most circumstances, this relief comes in the form of the bankruptcy discharge, which eliminates ongoing obligations on the debts being resolved through the bankruptcy. However, there are certain situations, such as with a car loan, where we may not wish to discharge the debt but instead continue to make payments so that the vehicle can be protected and the loan can remain intact after the bankruptcy has been concluded. Whether this comes in the form of continuing payments to the lender or paying the vehicle off throughout the course of a Chapter 13 plan, your bankruptcy can be structured to ensure that your car is protected both while the bankruptcy is pending and onwards moving forward from the discharge.
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When the time is right, or when you are ready, please don’t hesitate to reach out to Minnesota’s most kind and helpful bankruptcy law firm by going now to www.lifebacklaw.com.
