Recent Posts in Car Loan Category

Yes, you can but you will need permission of the Court.

While you are in chapter 13 bankruptcy you are prohibited from incurring new debt without permission of the Court. This means no new credit cards, home loans, car loans, or other sorts of debt until your case is over.

However, the Court will grant you permission to incur certain types of debt. The Court will understand that a car is a necessity for you to get to work and run your daily life. Therefore the Court will grant permission for you to incur a new car loan that is reasonable. Luxury cars are not likely necessary nor are trucks or SUVs, unless you need the truck for work, or have an exceptionally large family.

If you are unable to afford your car loan you may chose to voluntarily surrender the car to the bank.  After the bank has the car they will sell the car at an auction. They will apply the proceeds of the sale to the outstanding balance you have on the loan. If the bank collects more than you owe on the loan they will send you a check. However, if they do not collect enough at the auction to pay off the entire loan the bank will send you a bill for the deficiency.

If you owe a deficiency, you have a few opinions. Of course you could pay the bill, work out a payment plan with the bank.

Bankruptcy may also be an option. Bankruptcy will discharge your legal obligation to pay the deficiency.

Also, you may be able to save the car and reduce your car payments in bankruptcy by redeeming in chapter 7 or cramming down in chapter 13.

The goal for most individuals in bankruptcy is to receive a discharge of their debts. A discharge is a release of your legal obligation to repay your debt. With limited exception the discharge will discharge all your debt including your car loan.

However, in order to keep the car post bankruptcy you MUST continue to make the payments to avoid repossession.

Reaffirmation is a process in which an agreement is filed with the Court which says that the debtor is again personally liable on the debt.

In Massachusetts this agreement is unnecessary. Under Massachusetts State Law a bank cannot repossess a car unless there is a default which must includes one or more missed payments (see MGL Chapter 255 §20A).

Therefore, as long as you remain current on your car loan, in Massachusetts, you are able to keep the car without threat of repossession.

Banks will often point to federal law to scare people in to reaffirming. The federal law states that if there is no reaffirmation agreement then the bank can repossess even if you are current on the payments. However, your bank is bound to repossess under state law. So do not fall for this scare tactic.

If you have any questions about reaffirmation please feel free to give me call.

The goal for most individuals in bankruptcy is to receive a discharge of their debts. A discharge is a release of your legal obligation to repay your debt. With limited exception the discharge will discharge all your debt including credit card bills, medical bills, auto loans, home mortgages, and some tax obligations.

Some debts do not typically get discharged in bankruptcy including student loans, some tax obligations, child support, alimony and government or court fines (such as a speeding tickets).

The discharge does not typically affect a lien held on property. Therefore in order to for the debtor to keep property that has been used as collateral to secure a loan, the debtor must continue to make payments.

Some liens can be removed in bankruptcy. Liens held by the second mortgage can be removed, in this case the debtor will be able to keep their home and never again have to pay the second mortgage.

Judicial liens can also be removed. These are liens that have come out of a court action. Typically these occur after a credit card company has sued you over a debt and then they put a lien on your home.  

Very often the value of your car is much lower than the amount of your outstanding loan. (Check the value of your car at Kelly Blue Book, www.KBB.com  ). If this is your case bankruptcy may be able to help you reduce the amount of your loan and/or reduce your payments.

Debtors filing chapter 7 have the ability to redeem their car. Redemption is a process during your bankruptcy case where you pay to the bank the current value of the car. The amount of the loan that exceeds the value of the car is discharged.

Most debtors do not have enough cash to pay the current value of their car. However, there are banks that have loan programs for redeeming (checkout www.722redemption.com ). Your new loan payment will be less than your current payments because the principle of the new loan will be much less.

Debtors filing chapter 13 are unable to redeem their car, however they are able to cram down. Cram down is much like redemption without having to get a new loan. Chapter 13 is a court ordered payment plan, which is reasonable based upon the debtor’s income.

Through the plan you can repay your bank the current value of the car and then be discharged from the remainder of the loan. In order to cram down in chapter 13 the car loan must have been incurred more than 910 days prior to filing bankruptcy. At the conclusion of the chapter 13 plan you will own the car free of the lien.