Will My Car Loan Be Discharged if I File for Chapter 7 Bankruptcy in Texas?

 Posted on April 14, 2023 in Secured Debts

One of the main reasons why individuals start researching the bankruptcy process is that some of their property is at risk of being seized by a creditor. Mortgage lenders may threaten foreclosure, while car dealerships and other retailers of valuable assets paid off via installment contracts may threaten repossession. While the primary benefit of filing for Chapter 7 bankruptcy is usually securing a discharge of eligible debt balances, halting collections actions such as the repossession of a vehicle can also have a meaningful impact on a filer’s financial well-being.

Unfortunately, some filers are under the impression that bankruptcy results in both the end of collections actions of all kinds and the discharge of all kinds of debts. But, just as some collections actions – including those involving overdue child support – are not subject to the restrictions of the automatic stay, some debt balances cannot be discharged outright as a result of the bankruptcy process.

Secured vs. Unsecured Debt

Only unsecured debt balances can be discharged via personal bankruptcy. Although some unsecured debts, including overdue spousal support obligations and some tax debts – are not dischargeable, most are. Conversely, secured debts cannot generally be discharged via bankruptcy unless they are converted to unsecured debt under very rare, complex circumstances.

Secured debts are financial obligations that are tied to collateral, like a home or automobile. In the event that a borrower does not repay a secured debt per the terms of their lending agreement, a creditor can simply take the collateral back. This is why borrowers who cannot meet their auto loan obligations are at risk of having their vehicles seized via repossession.

Your Options

While filing for Chapter 7 will temporarily afford you protection from repossession due to the automatic stay, this protection will last for a few months at most. While your bankruptcy case remains active, you will want to speak with your attorney about whether you want to reaffirm your loan obligations so that you can keep paying your balance and maintain ownership of your car.

You could also opt to return your car to your lender in order to free yourself from the obligation to keep paying your loan. If you have access to funds – possibly due to selling another valuable asset – you could also redeem your loan by paying it off in full.

Alternatively, if you have not yet settled on Chapter 7 as your preferred debt relief solution, you can speak with our team about whether you could take advantage of a cramdown approach via Chapter 13 bankruptcy.

Schedule a Free Consultation with a Thoughtful San Antonio Bankruptcy Lawyer to Learn More

Whether you are hoping to keep your car or you are primarily concerned with getting out from underneath the weight of your auto loan until you can afford a new loan arrangement, working with a knowledgeable San Antonio, TX bankruptcy lawyer can help to ensure that you are empowered to make informed decisions about your rights and options under the law.

The team at Law Offices of Chance M. McGhee understands how consequential – for better and sometimes, temporarily for worse – the process of filing for bankruptcy can be. To learn more about how we approach the process of representing an individual’s interests during the bankruptcy process, call 210-342-3400 or reach out online to schedule a free consultation. Know that we will treat you and your case with the utmost respect and that we look forward to speaking with you.

Source:

https://www.capitalone.com/cars/learn/managing-your-money-wisely/understanding-car-loans-after-bankruptcy/1614