Considering Garner NC Bankruptcy But Worried About Your Car? 5 Car Loan Options When Filing Chapter 7 Skip to main content

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Considering Garner NC Bankruptcy But Worried About Your Car? 5 Car Loan Options When Filing Chapter 7



You have many choices when it comes to a car loan in bankruptcy

Image Source: Flickr User TCtroi


For those deep in debt, a Garner, North Carolina bankruptcy might be the best thing for your financial future. But if you have a car loan, you may be worried about how the Chapter 7 bankruptcy might affect your vehicle loan. Here’s a look at the five options available to you when it comes to North Carolina bankruptcy and car loans.

#1 Give Back the Car and Ditch the Debt

Suppose you have a car loan outstanding, but there are a lot of miles on the car, it’s having mechanical problems, or the interest rate on the loan is outrageous. One option to consider is surrendering the vehicle and discharging the debt.

You can notify the lender that you’re filing bankruptcy and are surrendering the car. You have six weeks within filing bankruptcy to make the notification so you can stop paying your car loan and put the money towards buying an affordable used car—or perhaps you have a second car.

Benefit: You get rid of a car that’s problematic or a loan that’s too costly, and the discharge will take care of the loan so you can enjoy your fresh start.

#2 Keep the Car and Keep on with Your Payments

If you are current on your auto payments, in most cases, the lender will allow you to keep the vehicle after you file bankruptcy, so long as you keep up with your loan payments. If the car is almost paid off and/or the car is in good shape, you may want to keep it.

You don’t need to sign a new agreement in most cases and can keep on as if nothing has changed. However, if your auto loan is through Ford Motor Credit or your local credit union, you may have to take an extra step. See #4 below.

Benefit: You can keep a car you like, provided you’re on top of your payments, and not have to worry about rushing to get another vehicle.

#3 Buy the Car for a Reduced Price

This is called redeeming the loan. Essentially, you can buy the car from the lender for the fair market value of the vehicle, but you must do so in a lump sum. You may be able to find someone to finance this amount if you can’t pay it in cash, or you can turn to a relative or friend for help.

For instance, your loan balance may be $7k, but if the blue book on the car is $1500, you can pay that to your lender and keep the vehicle. This is a great way to keep your car without keeping the car loan. It’s definitely something to consider.

Benefit: You get rid of the debt but get to keep the asset and come out of bankruptcy without a vehicle loan weighing you down.

#4 Reaffirm the Auto Loan

Reaffirming the loan is basically signing a new loan agreement that will exist after your bankruptcy discharge goes into effect. If your vehicle is financed through Ford Motor Credit, they will require you to surrender the car or reaffirm the loan. No other lenders behave in this manner.

If you have the loan through your credit union and also have credit cards that will be part of your bankruptcy, the credit union may refuse to release the title at the end of the car loan if your credit cards are collateralized by the vehicle. This is tricky, so it is best to continue under your lawyer's advisement.

Benefit: Reaffirming the loan if you have Ford financing will let you keep the vehicle, but this may not be your best outcome. With the credit union, consult your lawyer, because this is a difficult situation.

#5 Keep the Car, Keep Making Payments, and Change Your Mind Later

If you don’t reaffirm the loan, the car loan technically falls into your bankruptcy. That means that the debt is discharged but the lender won’t hand over your title until you finish making payments. But if along the way you decide you don’t want the car, you can still give it back.

You simply stop making payments and notify the lender where they can pick up the vehicle. This won’t mess up your credit because the loan was wrapped up in your bankruptcy. So if you get a better loan, are able to buy a car with cash, or decide you don’t need one, you can still get out of the loan later.

Benefit: This gives you more flexibility since you can keep the car so long as you keep making the payments but can also change your mind at any time.

To find out more about the benefits of Garner, North Carolina bankruptcy, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 now for a free NC bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.

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