-
How to Settle Auto Loan Debt Through Bankruptcy
Filing for bankruptcy eliminates a lot of debt, including auto loan debt if you so desire. However, you should know that declaring bankruptcy is never the ideal way to deal with an auto loan or any other debt that you are having trouble paying. Bankruptcy should only be declared if there is absolutely no other option: no refinancing is available and other debts on top of auto loan debt keep you from only defaulting on the auto loan. If this is the case, then you can at least settle your auto loan debt (among others) while declaring bankruptcy, and here’s how to do it.
Step 1: Assess Your Situation
Sit down and look through all your outstanding loans and your sources of income. Bankruptcy can clear almost all debts, but it’s possible for you to retain some of them if you so desire. You will need to have a place to live, food and transportation. Any debts that do not have to do with shelter or transportation can be cleared—if they aren’t necessities, then it’s not worthwhile to keep them through a bankruptcy.
Step 2: Decide Whether to Keep or Drop
Concerning transportation and shelter, you need to decide whether or not it’s viable and a good choice to retain or clear any debt. Do you want to start over, or is it worthwhile to finish paying the debts? If you have only a very little to go in order to pay off a loan—$500 on your $200,000 house, for instance—then of course it’s worth it to somehow come up with that $500 and own your house. If, however, you owe $20,000 on a new car that’s worth $22,000, it’s a much better idea to just drop the loan and look for a different used car for much less. You can buy expert financial advice tailored to your situation if you are unsure.
Step 3: Act on Your Decision
If you decided to simply drop your auto loan debt, you don’t need to do anything. That debt will be automatically cancelled in the process of filing bankruptcy, and your car will be repossessed. If you want to carry on with the debt, you will need to contact your lender and sign a document stating that you accept responsibility for the debt despite your filing for bankruptcy. You may need to refinance, and you will then be responsible for the remainder of the debt.
It’s generally not recommended to keep your auto loan debt and continue to pay it off after bankruptcy. However. sometimes it can be a good decision if you owe significantly less than it would cost you to get a used car in decent condition, and if you have the income to make payments in full and on time. If you want to settle auto loan debt through bankruptcy in a manner which allows you to retain the debt and keep your car, your lender will be able to make sure you can do just that.
