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Under a Chapter 13 bankruptcy, you can convert the unsecured portion of your car loan into general unsecured debt, which is a major benefit if you are worried about paying off the loan. If you took out a $20,000 loan on a car that’s only worth $5,000, you can cram down the loan to the car’s true value. This means that you would pay a modest interest rate for the $5,000 debt over the course of the Chapter 13 bankruptcy plan. The balance of your car loan will be treated like your credit card debt.
If you aren’t attached to your vehicle and don’t want to keep making payments, you can always choose to surrender it to the lender as part of a Chapter 13 or Chapter 7 bankruptcy. After you surrender the vehicle, you are no longer responsible for payments, insurance, or registration. However, make sure you keep paying these things until the lender takes back your car.
If you file Chapter 7 bankruptcy, there is an option called “redemption,” which allows you to pay the lender the fair market value of the car and to discharge the loan balance. If you choose this option, you will need to find a new lender that is willing to give you a loan so you can make the redemption payment to the original lender.
Car lenders want you to keep making your payments so they can continue to make money. This is why most lenders are usually willing to work out an arrangement where they can accept your car payments without repossessing your car. Our lawyers are here to guide you through the bankruptcy process and help you work with your lenders and creditors to reach a fair agreement.