Car loans often represent the largest debt in chapter 7 bankruptcy liability schedules. Unless a bankruptcy petitioner has a mortgage, car loans can be the most significant debt in bankruptcy. Since the goal of chapter 7 bankruptcy is debt relief some petitioners want to know whether they can eliminate their car loans in bankruptcy.
Are You Keeping The Car
Chapter 7 bankruptcy can eliminate a petitioner’s personal liability for a car loan, but it can’t erase the creditor’s security interest in the car. Accordingly, if a bankruptcy petitioner wants to keep the car, they must make their monthly car payments. If a bankruptcy petitioner stops making the monthly car payment, the creditor can repossess the car but can’t sue the petitioner personally during the bankruptcy (due to the automatic stay) or after the bankruptcy if the debtor receives a discharge.
Debt resulting from past repossessions is common in chapter 7 bankruptcy cases. In cases when the car has already been repossessed and sold at auction, petitioners are left with a bill that can exceed $10,000. Fortunately, in chapter 7 bankruptcy the deficiency balance or other debt resulting from repossession is unsecured debt. (After all, the car in which the creditor had a security interest has already been repossessed and sold). In chapter 7 bankruptcy, unsecured debt such as repossession debt is generally dischargeable. That means that repossession debt can be eliminated in chapter 7 bankruptcy.