Financial hardship, especially which results in filing for bankruptcy, can result in a need to settle outstanding car debt. If you haven't finished paying off your car loan, the lender will require you to settle the debt somehow. Depending on your lender, the bankruptcy regulations in your state and the specific financial circumstances you are dealing with, there are a few options for eliminating car debt.
Reaffirm the Loan
To reaffirm a car loan you are still paying off is to confirm with your lender that you will develop a monthly budget and continue to make the expected payments, despite filing for bankruptcy. With this option, you would be able to retain the car and the loan while you take steps toward finalizing the bankruptcy. Keep in mind that not every lender allows you to reaffirm the loan while going through a bankruptcy and that the risk of repossession at the first sign of delinquency increases greatly.
Surrender the Car
Another way to settle car debt during a bankruptcy is to surrender the car to the outside lender or car dealership that financed the purchase. The decision to surrender the car should be made if it is clear that you will be unable to keep up with the ongoing payments. After the car has been surrendered, the debt will be considered settled in terms of your bankruptcy proceedings.
Redeem the Car
In some Chapter 7 bankruptcy situations, you can redeem the car you are still making loan payments toward by making a one-time payment of the vehicle's current fair value to the lender. For instance, if your car is currently valued at $3,500, but your loan balance is $11,000 after interest and other penalties are added in, you could redeem the car by paying the lender the fair value amount of $3,500. Once this is done, the loan debt is considered settled, and you own the vehicle.
Consult a Professional
With the number of contributing factors, potential outcomes and the lasting effects of those outcomes on your financial status, it makes sense to consult with a professional and qualified bankruptcy attorney. The question of how to settle car loan debt is only one of many dilemmas you will need to address, and the guidance of an expert in bankruptcy is invaluable.
There are four primary steps you can take to settle car loan debt after you have decided to file for bankruptcy. Whether you retain the vehicle or need to turn it over, always choose the settlement option that will preserve your financial future in the best possible way.
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