Auto Loans are often the reason people file for bankruptcy. Whether you owe for a car that you no longer have due to repossession or voluntary turn in, or if you have a high interest/high payment for a car you want to keep, bankruptcy can provide relief even if you are behind on your car payments.
Chapter 7 bankruptcy will allow you to discharge an obligation on a vehicle you have lost, or one that you still have and no longer want to keep. You simply turn the car back in and discharge your total obligation on the vehicle. *If you have an affordable payment on a car you want to keep, you can still file chapter 7 to eliminate your other debts and obligations-you just keep making your current car payment-no problem.
Chapter 13 provides a means to keep a vehicle when you have a high interest/high monthly payment and/or when you are behind on your payments and need to keep your car. Filing a Chapter 13 case stops the creditor from repossession (and sometimes they have to give it back), and filing a Chapter 13 allows you to basically rewrite the loan. You can pay the balance you owe over 60 months and reduce the interest rate considerably resulting in a lower monthly payment to keep a car that you may be in danger of losing. And because this is a bankruptcy, you are also getting rid of all the other debt you have in the process!
**Chapter 13 cram down; if you have had the car for more than 2.5 years, or if the loan/lien on the car is a result of a refinance (you get a loan on a car you already own), then you can reduce the loan on your vehicle to the value of the vehicle. If you owe $10,000.00 on a car worth $5,000.00 you can “rewrite” the loan to pay the $5,000.00 and discharge the balance along with all your other unsecured debt.