If I apply for bankruptcy, will I lose my vehicle?

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If I apply for bankruptcy, will I lose my vehicle?

I’m caught up in a huge car title loan for which I will pay over $8,000 on a $2,400 loan that I had to take out for my daughter in college. My vehicle is worth only $4,000. It’s my only transportation and I have to get to work. What will happen?

Asked on January 10, 2015 under Bankruptcy Law, Missouri

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

Applying for bankrupty does not automatically make you lose your vehicle. However, when dealing with a secured loan, like car financing (that is, a loan or financing where the lender can reposses if not paid), bankruptcy does *not* affect the security interest, or the ability to repossess. You can escape liability, or a personal obligation to pay, the loan in bankruptcy, but you cannot escape the neecessity to pay the loan if you want to keep the car; if you don't pay, the lender can repossess the vehicle. What they can't do afterwards is come after you for the unpaid balance of the loan if filed bankruptcy, so in your case, if you owe $8,000 but the car is worth $4,000, if you default on, or fail to make payments on, the loan after bankruptcy, the lender can take the car but then can't sue you for the $4,000 you'd owe over and above the car's value.

It might be possible, after filing, to negotiate with the lender to get them to agree to lower your interest, your payments, forgive part of the loan, etc.--they don't particularly want to get the car back, since then they'd have to maintain and sell it, and would often rather be paid a reduced amount. So they may be willing to agree to accept less than they had been, and if they do agree in writing, such an agreement is enforceable. However, bear in mind that such an agreement is voluntary--you can't force the lender into it.


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