Auto Loans and Bankruptcy
If you are thinking of filing for bankruptcy there are a number of things that you need to consider not the least of which is your ability to buy a car once the bankruptcy has been discharged.
The view from AutoNet Financial
Here at AutoNet Financial, we deal in bad credit car loans. We also find ourselves answering questions from customers about bankruptcy and how the process will affect the filer’s ability to buy a car once the bankruptcy has been completed. Here is a very short explanation that will attempt to answer some of those questions
Types of bankruptcies
For individuals in the United States, there are basically two types of bankruptcies – a Chapter 13 and a Chapter 7.
Chapter 13
The Chapter 13 filing establishes a court-appointed trustee. The trustee sets up a repayment schedule that must be adhered to during the length of the bankruptcy – normally three or five years. The amount of the payment and the length of time are determined by a number of things including the amount of property involved as well as the individual’s income and expenses.
As part of the Chapter 13, participants may have the choice as to whether or not they want to “cram” a loan. During this process, the court forces the lender to accept less than 100% of the amount owed on the loan. The “Cramming” procedure not only reduces the payment, it also reduces the overall amount the lender will have received when the secured asset is paid off.
Chapter 7
The Chapter 7 bankruptcy involves liquidating a debtor’s assets and distributing the proceeds to the unsecured creditors. Unlike a Chapter 13, a Chapter 7 can only be done once every 8 years. While most debts under a Chapter 7 can be liquidated, certain obligations, such as spousal support, back taxes owed and student loans, are exempt and cannot be discharged.
A Chapter 7 also allows the filer to “reaffirm” a debt. In other words, you can inform the court that you don’t wish to include a portion of your debt, such as a car, in the bankruptcy. By doing this, you retain the property, but you also must continue making payments on the loan throughout the bankruptcy and you continue to be responsible for the full balance on the loan after the bankruptcy has been completed.
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