When you file Chapter 7 bankruptcy in New York City, you can usually keep an auto loan if you choose to. However, you have to decide if you're going this route right from the start because you have to specify whether or not you're keeping your vehicle when you file the bankruptcy paperwork. If you do decide to keep your car, it can come at a cost.

Chapter 7 Bankruptcy and Your Car

Can I Keep My Auto Loan during Chapter 7 Bankruptcy in New York?Chapter 7 is considered a liquidation bankruptcy. This means your trustee can sell, or liquidate, any of your property that's not covered by an exemption in order to pay your creditors. This could include your vehicle.

Chapter 7 gives you a few options regarding your auto loan when you file. These options differ from those you have available if you own a car outright. When you own a vehicle, you're able to keep it if it's value can be covered by an exemption. In New York City, you have the option to choose between state or federal exemption amounts.

Be sure to look at how much equity in your car can be covered by each before you file; you have to choose which exemption program you're using on your filing paperwork.

Your Auto Loan in Chapter 7

If you don't own your vehicle, you typically have three options during a Chapter 7 bankruptcy: surrender the car, reaffirm your loan, or redeem the vehicle.

Let's take a closer look at the options you have in the Big Apple:

  • Surrender – If you choose to surrender your car, you walk away from your loan and give the vehicle back to the lender. You must indicate this option when you file so that you're not responsible for the loan once your bankruptcy is discharged.
  • Reaffirmation – Reaffirmation is an agreement with the lender to keep your car and continue making payments as if you aren't in a bankruptcy. This means that none of your vehicle's value or loan amount is included in your Chapter 7, and missing a payment can result in immediate repossession even after the bankruptcy is discharged. Before you can reaffirm your loan, you have to prove to the court that the loan payment is reasonable, doesn't cause you undue hardship, and that your car is a necessity.
  • Redemption – In order to redeem your vehicle, you must be able to pay your trustee the total value of the car in one lump sum. This can be a great option if you have negative equity – owe more than the vehicle is worth. To find the estimated value of your car, you can use valuation sites such as NADAguides or Kelley Blue Book. Be honest about the age, mileage, and condition of your vehicle when using them. If your lender doesn't agree with the valuation estimate, the bankruptcy court decides the redemption amount.

If You're Unable to Keep Your Car

If you're unable to keep your car during Chapter 7 bankruptcy in New York City, at least you won't have to be without one for long. A Chapter 7 bankruptcy is a short process, typically only lasting four to six months. Once your bankruptcy is discharged, and even before in some cases, you're usually able to get another loan with the right lender.

Not all lenders work with people who have been through bankruptcy, so it can sometimes be difficult to know where to turn. At Auto Credit Express, we understand the toll bankruptcy can take on your credit. We're teamed up with a large network of special finance dealerships throughout the U.S., including dealers that specialize in bankruptcy auto loans.

These dealerships work with lenders that can help people who are struggling with credit, and we want to connect you with one in your area. You've been through enough stress with your Chapter 7, so let us save you the search for your next car loan. Getting started is simple, and there's never any obligation to buy. Start now by filling out our auto loan request form.