Having a vehicle repossessed when you are already experiencing financial troubles is likely to just worsen the problem. With no transportation, getting to work can be difficult and even impossible for some families. While no one sets out to default on their car payment, it does happen. Fortunately, filing for bankruptcy can help.
The biggest difference between types of bankruptcy cases is what you intend to do with your debt in the end. If you cannot afford to repay your car loan debts, or even get caught up on missed payments, a Chapter 7 case can eliminate these debts. This generally means giving up the vehicle and allowing it to be taken back by the creditor. However, there are some situations in which bankruptcy exemption laws will protect the vehicle in a Chapter 7 case and allow you to keep it. Be aware that each state carries different exemption laws and even if a law generally applies, it is not a guarantee of protection.
On the other hand, filing for Chapter 13 can allow you to keep the vehicle while you make your payments and get caught up on missed payments. By repaying the debts through the Chapter 13 plan, the creditor’s repossession rights are forfeited and cannot collect outside of the plan. In some cases, the bankruptcy court may allow you to have part of the debt eliminated in a Chapter 7 and leave you to repay the rest through the repayment plan. This is typically reserved for circumstances in which a debtor needs their vehicle to ensure income but owes more on the vehicle than it is worth.