Surrendering a car in bankruptcy means you give up the car. But, the chapter 7 surrender also means the loan goes away.
People often ask me if they can keep their car if they file bankruptcy. And if they have a modest car without a lot of “equity”, the answer is often yes. For them, a chapter 7 bankruptcy offers an exemption, letting them keep the car.
Those who file chapter 7 bankruptcy face three options with secured loans such as car loans. They can keep the vehicle and reaffirm the debt. They can redeem, meaning “crunch down” the loan. Or they can surrender the vehicle. Previous blog articles looked at reaffirmation and redemption. (Links are below.)
But what if the car’s condition is not the best? It may be unreliable. It may need body work. Especially if you owe more on the vehicle than it is worth, surrendering a car in bankruptcy may offer the best choice.
I want to surrender my car how do I do it?
First of all, bankruptcy law requires disclosing all debt, secured and unsecured. People often say they don’t want to “put that in” bankruptcy meaning they want to pick and choose what the bankruptcy case will deal with. At the same time, the bankruptcy law mandates inclusion of all debt and all assets.
In our scenario, a vehicle whose outstanding loan exceeds its value, this presents no real problem as long as the rules are followed. The car is listed as an asset and the car loan is listed as a secured debt. With the right indication stated on the bankruptcy papers the vehicle becomes subject to “surrender”. As a result, at the end of the chapter 7 bankruptcy the car loan goes away. So as long as everything else in the case presents no issue the bankruptcy court enters a discharge.
By the way, surrender works with any type of vehicle. Our example above refers to a car and a car loan. The same law applies to any vehicle, a pickup or other truck, a motorcycle, anything with a secured loan. Even trailers or campers come under the same idea.
Did I forget to mention that at some point you and/or your bankruptcy attorney negotiate with the car loan company for a time and place for the vehicle’s surrender? It is towed away.
When is repossession not repossession?
Many people know repossession leaves major headaches in its wake. The lack of transportation tops the list, along with continuing legal challenges. After repossessing a car the car loan company sells the car at auction. That costs money. There are processing fees, legal fees and other charges including the initial tow. Those are tacked onto whatever was owed on the loan and they come after the car owner/debtor with what they call the deficiency.
A deficiency is the unpaid loan amount, minus whatever they may have made through the sale, plus interest and the above mentioned costs.
In bankruptcy surrender the car owner gives up or surrenders the car. But the debt, again as long as everything else proceeds correctly, goes away under the bankruptcy discharge.
Surrendering a Car in Bankruptcy – An Option
Bankruptcy requires disclosure of all assets and debt. It can represent a simple matter in some cases and a fairly complex one in others. Either way, people filing bankruptcy face a full review of their finances and disclosure in the petition, schedules and statements filed in declaring bankruptcy.
“Can’t I just keep one card?” If it’s a credit card with your name on it the answer is no. I receive this question fairly often. The answer requires viewing the bankruptcy process as the all-inclusive tour, not the buffet table where one can pick and choose. At the same time, although the all-inclusive idea applies to disclosure of all debt and assets, options are in some cases available for how to deal with secured debt in bankruptcy.
Surrendering a car in bankruptcy represents one of those options.
For more on keeping the car: reaffirmation – click here.
For more on redeeming the loan, or “crunch down”- click here.
The author of this article, Attorney Andrew D. Myers, practices law in New Hampshire and Massachusetts with offices in Derry, NH and North Andover, MA. The office represents consumer bankruptcy clients in both states with a focus on consumer Chapter 7 and Chapter 13 filings.
Photo Credit: Towing the Outback by Dan Harrelson under license from Creative Commons. The original photo was edited.
11 U.S.C. § 521