If you are planning to file for bankruptcy protection, you are probably wondering what will happen to your secured debts, such as your home loan or car loan. A secured debt is created by any loan where you have pledged an asset to the lender as collateral. If you fail to make your payments on a secured loan, the lender is granted the right to seize or foreclose on the collateral.
When it comes to bankruptcy, it can be confusing to understand how your car loan will be handled. When your bankruptcy case is successfully completed, your obligation to pay a debt (even a secured debt) can be discharged or eliminated. Once your debt has been discharged, your creditor is prohibited from filing a lawsuit against you to collect the debt.
It is important to understand, however, that a secured lender can seek to recover their collateral even though you filed for bankruptcy. A creditor can file a Motion for Relief from the Automatic Stay and ask permission from the court to repossess or foreclose on your vehicle or house that you are no longer paying on. While the creditor may be allowed to recover the collateral, they cannot file a lawsuit against you to recover the debt.
If you want to keep possession of your vehicle, you must bring your loan payments current and keep them current. You must also maintain the proper insurance on your vehicle. Your creditor is allowed to seek proof that its collateral is adequately insured. Unless your car loan is paid in full during your bankruptcy case, you must continue to make the payments on it after your discharge if you keep possession of the vehicle.
It is worth mentioning that in a Chapter 7 case, your car lender may ask you to sign a “reaffirmation agreement,” which is a new contract that removes your car loan from being included in your bankruptcy filing. In other words, you remain liable to pay the total amount of the reaffirmed amount. It is imperative to confer with a bankruptcy attorney before you sign a reaffirmation agreement. You may also have the option to redeem your car loan debt. To learn more about these topics, please read our blog titled “Can I Keep My Car in Bankruptcy?”
We understand it is confusing to know how to handle your car loan in your personal bankruptcy case, so it is important to confer with us to understand all of your options.
We are bankruptcy lawyers who know how to make a difference in your financial situation. We have experience you can rely on and we care about your results. Contact our New Jersey law firm online by filling out the form or by calling 973-323-2953 to schedule a free initial consultation with an attorney at Levitt & Slafkes, P.C..