The reality is that for most people the days of a 3 or 4 year car loan are gone. In my practice I often see potential bankruptcy clients with car loans of up to 7 years!
With such lengthy car loans, the likelihood of a car being damaged or failing mechanically before the completion of the loan are significant.
In a Chapter 7 bankruptcy you have the right to discharge a secured loan such as a car loan.
Generally speaking the creditor will then make arrangements to pick up and sell the vehicle. The amount that the creditor gets at the auction of the car is all it can get from a debtor that has “surrendered” a vehicle in a Chapter 7 bankruptcy.
A similar result occurs in a Chapter 13, with the only difference being that if there is still money owed after the auction of the vehicle, that money owed, often referred to as a “deficiency”, is treated as an unsecured debt, and the creditor may receive some or all of the deficiency if payments are made to the unsecured creditors in a Chapter 13 Plan.
The option of whether or not to surrender a vehicle and the type of bankruptcy to file should only be made after consulting with an experienced bankruptcy attorney.
by Kevin Gipson, New Orleans, Louisiana bankruptcy lawyer.