If I used a car for collateral on a personal loan and am now thinking of fillingbankruptcy on that loan also, what would happen with that car?

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If I used a car for collateral on a personal loan and am now thinking of fillingbankruptcy on that loan also, what would happen with that car?

Would I have to surrender the car?

Asked on November 30, 2011 under Bankruptcy Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Bankruptcy or no, if you do not pay the loan, the lender can almost certainly repossess the car. That is because while bankruptcy can discharge the debt--i.e. you would not have to pay the outstanding amounts, or might pay only a portion or percentage of them--it does not extinguish or wipe out a security interest, or collateral. So if you do not pay the loan and declaure bankruptcy, the lender could not sue you for money, but it would still be entitled to take the car if it was collateral.


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