Keeping your car after bankruptcy is possible with Chapter 7 or Chapter 13 bankruptcy. Chapter 13 bankruptcy may allow you to stop repossession by forcing the creditor to change the loan payment terms. In addition, if you bought your car more than 910 days before filing Chapter 13, you may be able to force the lender to accept less than the balance owed on the car. When the loan is more than 910 days old, the creditor must accept a payoff equal to the fair market value of the car. This procedure is called “cramming down” the loan. If you purchased your car less than 910 days before filing Chapter 13 bankruptcy, you won’t be able to “cram down” the loan. However, in all Chapter 13 bankruptcy cases you will get five years to pay off your vehicle, at a reduced interest rate.
Chapter 7 cases do not allow you to “cram down” an automobile loan. Instead, you will be required to sign a reaffirmation agreement on the debt in order to keep the vehicle. Reaffirmation agreements require you to keep paying the regularly monthly payments on the vehicle under the terms of the original contract. When you reaffirm a debt, you will be responsible for the debt after receiving a Chapter 7 bankruptcy discharge. Be careful about reaffirming a debt. If the vehicle is repossessed after your bankruptcy, you might be liable for a deficiency claim if you signed a reaffirmation agreement.