Should you surrender your car in bankruptcy?
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Chapter 7 Wilmington bankruptcy is one of the fastest means of obtaining freedom from debt and getting your financial life back on track. The process takes just a few months from start to finish, and you can walk away from most unsecured debt with a clean slate. Secured debts are different. One type of secured debt is your car loan. Should you do anything possible to keep your car or is it wiser to surrender it?
You can keep assets in Chapter 7
There’s a myth that people who choose Chapter 7 for their Wilmington bankruptcy will lose all their personal property. For the most part, that’s not true. North Carolina bankruptcy exemptions protect a lot of your assets. You can shield a small amount of cash in the bank, furniture, computers, clothing, household goods, and some equity in your home or auto.
If you have a car loan or lease when you file your Chapter 7 bankruptcy, and you’re behind on payments or aren’t happy with the finance arrangement, you may want to consider your options. You have three choices – keep the car, redeem the vehicle, or surrender it – depending on your resources, payment status, equity, and market value of the car.
Here’s why you might want to surrender your car.
When does surrendering your car make sense?
If you fell behind on payments towards your car loan, the lender will likely try and repossess it. Filing bankruptcy can stop it in the short term, but you’ll have to sort out your finances shortly. You should consider how much the car is worth and what condition it’s in currently. For those behind on payments with a vehicle barely in running condition, surrender makes sense.
Also, if you’re upside down on the loan, you might want to rethink it. That’s when you owe more than the car is worth. For instance, if your loan balance is $5k and the market value of the car is $3k, you’re paying more than its value. You could surrender it, so you don’t overpay for your vehicle. Surrender might be a good option.
Finally, no matter what the vehicle is worth, if you cannot afford the loan payments, surrender is likely better than trying to keep on scraping to make payments you can’t sustain. Surrender would work in this case, but if you can afford to do so, redemption is another alternative to surrender for those with resources to make it work.
When surrendering your car doesn’t make sense
During Chapter 7 Wilmington bankruptcy, surrendering your car doesn’t always make sense. Here are some circumstances where you might want to hang onto it:
- If your payments are current, affordable, and the equity is positive in your favor.
- If you’ve almost paid off the loan and can do so soon even if it strains your budget.
- If you can sell the car and come out ahead without surrendering.
- If the vehicle loan has positive equity, payments are reasonable, and it’s in good repair.
Redemption is another option
If you can work it out, a third option exists between surrendering the vehicle and keeping it. You can redeem the loan in Wilmington bankruptcy. That means you pay off the vehicle but under more reasonable terms. Very recent car loans don’t qualify for redemption, but for those that do, it can be helpful and of significant benefit.
With a redemption, you pay off the market value of the car rather than your loan balance. So, if your loan balance is $5k but the car is worth just $2k, you can “buy” the car through Wilmington bankruptcy redemption. You must be able to pay this amount in cash, but if you have some savings or can borrow it, this might be a good way to go.
To find out more about your car in bankruptcy, read reviews from clients then call +1-919-646-2654 to reach the Law Offices of John T. Orcutt. Contact us today for a free Wilmington bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.