Going through a difficult financial time can be one of the most stressful and worrisome experiences. Bankruptcy is often a sensible solution to getting things in order and clearing your debts. But, one of the greatest fears that most California residents face is the possibility of losing their vehicle in the process, especially if they took out an auto loan.
Understanding dischargeable debts
When you file for either Chapter 7 or Chapter 13 bankruptcy in California, the court will categorize your debts into two different types: dischargeable and non-dischargeable. Non-dischargeable debts are those that the judge can not eliminate; you must pay them regardless of your financial situation. Dischargeable debts, on the other hand, are those that a judge can forgive. The court’s decision on how to categorize your car will depend on several factors, such as the value of the vehicle, the amount of money still owed on the loan and your financial situation.
Options to deal with your car loan in bankruptcy
If your car falls under the non-dischargeable category, you will still be responsible for paying the loan after bankruptcy. However, there may be some options available to help make the payments more manageable. For example, if you are filing for Chapter 13 bankruptcy, you may be able to reorganize your debt to include your car loan payments in your repayment plan. This can lower your monthly payment and give you some much-needed relief.
You could also reaffirm your current car loan agreement, which means that you agree to continue making payments on the loan, and the lender agrees to not repossess your vehicle. Or you could redeem the car loan with a new lender. However, this option requires judicial approval and may sometimes come at a higher interest rate.
If things prove difficult, you may also opt to surrender the vehicle directly to the lender. You’ll need to get this in writing, signed and notarized. Until then, be sure to stay current on your insurance to avoid any penalties.