When it comes to a canceled auto loan, what happens to your car and the loan during bankruptcy depends on the status of your auto loan, which bankruptcy you choose, and your willingness to pay to keep the bankruptcy. vehicle.
Auto loans written off
Write-offs are unpaid debts that are classified as “bad debts” after several missed or late payments or failed collection attempts by the creditor. A written off debt is a debt that the lender has taken off its books and subsequently closed the account.
A canceled car loan, like a written off debt, is sold by the original lender. However, just because it is charged does not mean that you are no longer responsible for paying it. The loan is usually sold or transferred to another lender or collection agency, and they attempt to collect the debt from you.
Some auto loans can be written off without the vehicle being repossessed. Not all write-offs are associated with the repo, and things can get complicated in bankruptcy.
Bankruptcy and write-offs
When it comes to a car loan written off, whether or not you want to pay off the debt during bankruptcy, you should include it in your documents when you make your initial filing. To do this, you need to list the debt as secured or unsecured.
If you have a written off auto loan and file for bankruptcy, the debt could be discharged if the vehicle is repossessed. Auto loans are secured debts, and the vehicle itself is what secures it. When you promise to repay the auto loan, you agree that the lender can take possession of the car by repossession in the event of default.
Once the vehicle has been picked up, any loan balance remaining after the car is sold is unsecured, which means it can usually be discharged in the event of bankruptcy. Most debts and unsecured loans, like credit card debt, can be discharged if they are not paid off at the end of bankruptcy.
If your auto loan was written off but you still have the vehicle, you may be able to keep the car depending on which chapter of bankruptcy you are filing.
Auto loan written off in Chapter 7
If your car loan has been canceled but you still have the vehicle, it is secured debt. Since the title is in your name because the car was not sold by your lender, the entire loan balance is secured debt and you note this on your bankruptcy forms.
If you want to keep the vehicle which is still secure, you need to reaffirm (continue to make payments) or redeem the car loan (pay the value of the car in full). However, reaffirmation is usually only possible if you are up to date on the loan, and a written off auto loan means you are out of date – so buying back is probably your only choice if you want to keep the vehicle.
If the loan is written off and the lender has repossessed the car, the loan balance is no longer guaranteed. Any loan balance not collected by the sale of the vehicle is now a deficit, and it can usually be discharged, along with most other unsecured debts. Chapter 7 Bankruptcy.
Auto loan written off in Chapter 13
If you file for Chapter 13 bankruptcy, you may be able to continue paying off the loan and keep the car even if the loan is canceled. If the vehicle has been repossessed, you may even be able to recover the car. However, to get it back, you’ll likely have to pay off the loan in full, according to the legal site Nolo.com.
Another option you might have is to lower the loan and pay only fair market value. A squeeze involves reducing your loan balance to the value of your vehicle. If your loan is in a negative equity position, which means you owe more than it is worth, you may be able to reduce the loan and establish a payment plan that involves paying only the value of the car. This could save you a lot of money on the auto loan and if you meet the conditions.
Another option is to hand over the vehicle to the lender (voluntary repossession) and use the proceeds from their auctions to reduce the loan amount. And, since the loan is no longer secured by the car, it can be paid off with your other debts at the end of your Chapter 13.
After bankruptcy, you are generally in a much better financial situation than when you started. Most unsecured debt is usually paid off, and your finances are generally in better shape overall. However, your credit score can be worse for wear and tear.
Your credit reports may reflect bankruptcy for up to seven or 10 years, depending on the type you have filed. With bankruptcy on your credit reports, it can be difficult to qualify for another car loan even when your bankruptcy is released and ended. But there are lenders who can help post-bankruptcy borrowers, called subprime lenders.
Subprime lenders specialize in helping with difficult credit situations, such as car loans written off, past repossession and bankruptcy. Finding these lenders, however, can be a bit tricky as they usually don’t stand out in the crowd of lenders and dealers – we want to help you with that.
Here has Auto Express Credit, our goal is to connect borrowers with dealers who have purchased bad credit loan options. To be matched with a dealer near you who can help borrowers with poor credit and unique credit situations, complete our free form. auto loan application form. We will immediately get to work looking for a dealer in your area!