If you are filing for Chapter 7 bankruptcy, you must learn how this will affect your car loan and ownership. The first thing you should decide on, however, is whether you want to surrender your vehicle, or whether you want to keep it. In very simple terms (but the reality is slightly more complicated), you can keep your car if you haven’t been making payments on it and the value of the vehicle is lower than the exemption amount your state has set. If you have been able to make payments, however, the rules are different. Regardless, you must always start by filing a Statement of Intention (SOI).
If you choose to surrender your car, you will have no further liability on the vehicle. If you have been making regular payments on your car and wish to keep it, you must continue to make those payments. However, in this case, you will have to either start a new contract on the remaining value of your car (reaffirmation agreement) or you will have to pay it off in full when your bankruptcy completes. If the lender has continued to accept your payments, you can assume that the reaffirmation agreement has been accepted under the same terms as before. To be on the safe side, however, you should still contact your lender to have some confirmation. You should do this as soon as you have decided to file for Chapter 7, as it will also help you to complete the SOI correctly. Of course, you need to consider whether a reaffirmation is the best idea for you. After all, if you surrender your vehicle, any remaining finance will simply be wiped off.
However, in most cases, people would prefer to keep their vehicle, which means negotiating a reaffirmation agreement. You must indicate this on your SOI, after which the lender will write to you explaining the new terms of your contract. You do not have to accept this at face value, as you are able to negotiate and aim for a better deal. Remember that you hold all the cards here, since you can also surrender your vehicle, in which case the lender gets nothing. Make sure you are daring and ask not just for much lower monthly payments, but also for a reduction in your loan principal. You never know, and the worst outcome would be for the lender to say no. If they say no, they will send you a counter-offer and it is up to you to then agree on that, or negotiate further. Finally, when you have come to an agreement, you must get the court to agree to it as well. This is generally not a problem, unless they believe the new terms to not be in your favor.