Category Archives: Bankruptcy & Auto Loans

Keeping your auto: car loans in bankruptcy

If you’re considering bankruptcy, it can be hard to decide what to do with your car loan. You may have difficulty paying all your debts, but at the same time, you want to keep your vehicle.

In fact, it could be nearly impossible to get back on your feet financially without the use of a car, which is often needed to travel to a job and earn money, says Roberta Andrews, a bankruptcy attorney with Firebaugh & Andrews Westland Michigan 48185

Fortunately, it is possible to keep a car in bankruptcy. “For people who have a vehicle, are financing it and want to keep it, there’s a method that can be used for them to continue to make payments and maintain the car they own,” says Andrews

The exact method to use depends on the type of bankruptcy that’s filed, Chapter 7 or Chapter 13. Here’s a look at the options for car loans under each type of bankruptcy.

Auto loans in Chapter 13 bankruptcy

Under Chapter 13, the borrower would continue to pay off some of his or her debts in a reorganization, or restructuring, of what he or she owes, says Andrews. The borrower would repay the car loan debt as part of the repayment plan, but the total amount repaid would depend on how old the car loan is, Andrews says.

Newer car loans. If the vehicle loan is less than 910 days old, the borrower must pay the full value of the car loan, says Andrews. However, there is a chance under the bankruptcy guidelines that the interest rate could be reduced, she says, which might lower the monthly payment.

Older car loans. If the car loan is older than 910 days, the courts would give the borrower a prorated payment amount based on how much the car is worth, says Andrews. “They’ll take a look at the car’s current fair market value, and they’ll create a payment plan from that,” he says.

Borrowers who are already behind on their auto loan payments may be able to work out an additional financial arrangement with the lender, says Andrews. “You would not only make the regular payments, but whatever the arrears are, you could also make up those payments in a Chapter 13 framework,” she says.

Dealing with Secured Auto Loans in Bankruptcy

Dealing with Secured Auto Loans in Bankruptcy

Bankruptcy offers the option of keeping your secured property by immediately paying it’s current replacement value of the object rather than the loan amount. This can be an attractive option for those with auto loans where the value of the car has most likely depreciated faster than the loan balance. However, coming up with the full amount in cash can be difficult if not impossible. In the past few years, a few alternatives have arisen.

Vendors of “Redemption Financing”

The companies listed below specializes in making auto loans to bankrupt debtors seeking the bankruptcy option of “redemption” of their vehicle, whereby the debtor keeps the car by immediately paying the vehicle’s current market value (replacement value) rather than the full loan amount over time. These companies will finance a new auto loan (generally through a bank) to produce the cash to pay the redemption amount to your original creditor, and then you pay the redemption amount to the new lender over time. Of course, if you miss payments under the new loan, you’ll still lose the vehicle, but at least your monthly payments should be smaller. The new lender takes ownership of the lien on your car. Debtors must have an otherwise good credit history to qualify, and the car must be in good enough condition (i.e. worth enough) to protect the bank’s loan.

722 Redemption Financing (via US Bank)

This company specializes in making auto loans (through US Bank) to debtors seeking the option of “redemption” available to those in bankruptcy whereby the debtor can keep a car by paying the current market value (replacement value) of the automobile rather than the loan amount. The company will finance redemption of your existing automobile, or arrange financing for a replacement automobile. Debtors must have an otherwise good credit history to qualify. See the site for more information.

The site has special home pages for debtors, debtors attorneys, creditors, creditors attorneys, bankruptcy trustees, auto dealers.

Of course, if you can’t make the payments on this revised amount loan, you’ll still lose the car, just to a different lender. So this option is only a solution if you can make the payments on the reduced amount.

FreshStart Loan Corporation

Fresh Start Loan Corporation, a Delaware Corporation, dba Redemption Financial Services™ is a duly licensed Consumer Loan Company that began its operations in 1999. The company is now licensed in 12 states*, with licenses pending in 6 states** as of January, 2005.