In today's difficult economy, used car prices are dropping like stones. That's leaving a lot of habitancy "upside down" in their vehicles; in other words, they owe more than the car is assuredly worth. In a episode 7 bankruptcy, you have basically three options in this situation: reaffirmation, redemption, and surrender.
Reaffirmation
Value Used Cars
Reaffirmation is a policy by which you agree to pay a debt, in this case a car loan, which would otherwise be discharged in bankruptcy. Reaffirming your car loan is generally a bad idea when the car is worth less than you owe on it. You have to keep current on payments and sign an bargain with the lender that you wish to "reaffirm" the loan you already have with them. Same bad terms, same bad deal, especially if you're agreeing to fulfill the equilibrium of a ,000.00 loan for a car that's only worth ,000.00. Plus, the bankruptcy court has to approve this reaffirmation agreement. For this to happen, you must show the Court that the payments won't be an "undue hardship" on you. That may not be as easy as it sounds. But let's assume the Court approves the reaffirmation. If you later default on the loan, the lender will repossess the car and you will owe the disagreement between what they sell the car for and what you owe them under the terms of your loan agreement. You could end up with no car and a bill for thousands of dollars from the lender.
Redemption
A best bet might be redemption. If your loan equilibrium is ,000.00, but your car's market value is only ,000.00, you can redeem your car in a episode 7 bankruptcy for what it is assuredly worth, ,000.00. You get to keep the car and you owe nothing to the loan company beyond the ,000.00. So where do you come up with the money to take benefit of car redemption? Friends or relatives who are willing to loan you the money are one option. But make sure the loan is made after the bankruptcy filing, or it will have to be listed on the bankruptcy petition. If you need help formalizing the loan, sites like VirginMoney.com will draft and even conduct loans between friends and house for a reasonable fee.
No magnanimous friends or house who are flush with cash? There is another potential explication to this dilemma. Redemption funding fellowships are springing up all over the place to lend you money to redeem your car in bankruptcy. You could end up owing less on the vehicle, paying lower monthly payments, and still holding your car. Be careful, though - some of these lenders are predatory. You could conceivably end up in a worse deal than the one you started with. So read the redemption loan contract intimately before you sign. Pay extra attentiveness to the loan terms and to any fees that are being charged. If you have an attorney, ask if he or she can advise a reputable redemption funding company for you to work with.
Surrender
Your last option is to surrender the car to the bankruptcy trustee. You would lose the vehicle, but you also get to extraction any potential shortfall between what the lender can sell the car for and what you owe them. The loan contract is extinguished, and you can just "walk away". If your car is very expensive and you assuredly can't afford it, this may be the smartest thing you can do. The same reasoning holds true if your car is in bad shape and needs a lot of high-priced repairs. Keep in mind that there are lenders out there who will work with habitancy right out of bankruptcy to finance the purchase of a more affordable, and more dependable car.
Though these are your three main options for handling an "upside down" car loan in a episode 7 bankruptcy, check with an experienced bankruptcy attorney before development any decisions. There may be alternatives (like a episode 13 bankruptcy, for example) that best suit your needs.
Bankruptcy Options When Your Car is Worth Less Than You Owe
