Car Loans and Bankruptcy In Connecticut

 

You can maintain your car, even if you file bankruptcy.

Whether or not your car loan will be affected by your bankruptcy filing depends on whether or not you are current in your monthly installment payments, whether you file Chapter 7 or Chapter 13, and what you would like to accomplish.

Debt which is secured by personal property, like an auto loan, has two components:

  • Your personal obligation to repay a loan to the bank (the note)
  • A transfer of a security interest in the vehicle to collateralize your obligation (the security agreement). Your bankruptcy will result in the discharge of your personal obligations under the note, but the bank’s security interest (its interest in your car) will usually not be affected.

When you file your bankruptcy petition, you have three choices with respect to debt secured by personal property, like a car loan. You can “reaffirm” your existing payment obligations, or “redeem” the collateral. Under either of these options, you will retain your car. You can also choose to surrender the vehicle.

Reaffirming the Car Loan

This is done by entering into a “reaffirmation agreement,” by which you promise to repay the car loan (usually according to its original terms, but sometimes the bank is willing to negotiate terms which are more favorable to you). Although you will have the opportunity to rescind the reaffirmation agreement for a short period of time after you sign it, you will never be able to obtain a discharge of the reaffirmed obligation. For this reason, you should only sign a reaffirmation agreement if your car loan is current, or can be brought current quickly, and you are sure you can maintain the installment payments in the future. Most bankruptcy filers with car loans choose this option, and have no trouble paying the loan after their other debts are discharged.

Redeeming the Vehicle

You also have the right to redeem the car, free and clear of the loan, by paying the bank only the car’s fair market value, that is, what the car is worth, in an immediate lump sum payment. In some instances, it is possible to buy back the vehicle for significantly less than the outstanding balance on the loan. As a practical matter, however, this is not a realistic option for most bankruptcy filers, because it usually requires access to at least a few thousand dollars of cash.

Surrendering the Vehicle

If you believe you will not be able to maintain the current payments on your car loan, or if the balance of the loan is significantly higher than the value of the vehicle, you may decide to simply surrender your car. Upon entry of your bankruptcy discharge, you will have no further obligation on the installment note, and the bank will not be able to sue you, even if, after repossessing the car, it sells at auction for significantly less than you owe the bank on the installment loan. If you choose this option, you will probably have to make arrangements to buy a lower-priced replacement vehicle so that you have transportation.

Additional Options

In Chapter 13, there are some additional options for car loans. If the car loan is in default, you can cure the arrearage by paying it over three to five years, through your Chapter 13 plan, and thereby keep your car. If the car is worth significantly less than the loan balance, you can pay the bank the value of the car though the plan, and pay the unsecured component of the bank’s claim the same percentage as other unsecured creditors will receive. This is called a “cramdown.”

Contact Lawyer Edward P. Jurkiewicz Today

If you would like to learn more about our firm, please contact our office. We offer a free initial consultation to discuss your situation. With offices in Hartford, Avon and Torrington, we represent clients throughout Connecticut, including the Greater Hartford metropolitan area, and the Farmington Valley and Litchfield County areas.

Hartford area bankruptcy attorney and divorce lawyer Edward P. Jurkiewicz has over 20 years of experience representing clients. Our firm represents debtors and creditors and handles both relatively simple divorces and bankruptcies and more complex litigation matters. With this depth of experience, our firm is able to anticipate and prepare for any potential issues that could arise in your bankruptcy, divorce or family matter.

CONTACT US TODAY AT 860-299-6263

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