If you file for bankruptcy with an existing car loan, you have options. For starters, you can surrender the vehicle and forgo paying the remaining loan balance simply by including the vehicle in your bankruptcy filing. To keep the vehicle, you can attempt to go through the redemption, reaffirmation, or cramdown process.
Anyone going through the bankruptcy process with an existing car loan would be wise to seek legal counsel and consider each of these options carefully!
You can redeem your existing car loan by paying its fair market value to your lender in one lump sum. The lender must approve this process. If you have the cash, this is a great option for anyone whose car is worth less than their loan balance.
When you choose reaffirmation, you can renegotiate the terms of your loan with your lender. They’ll allow you to make timely payments and you can rest easy that your car won’t be repossessed.
If you purchased your vehicle 910 days (about two and a half years) before filing for Chapter 13 bankruptcy, you may qualify for a loan cramdown. This process reduces your outstanding loan balance to the current market value of the vehicle. If you have negative equity on your loan, replacing it with a cramdown loan may offer some relief.