Transportation is an integral part of everyday life. We all rely on our vehicles to get us back and forth to work and school, to the grocery store, to the doctor’s office, and anywhere else we need to go. If you’re in the process of filing for bankruptcy you are probably worried about what will happen to your vehicle as you move through your proceedings. If you own your car outright you probably won’t have a problem but if it is financed or leased, and if you are behind on your payments, you will find you have a series of options to choose from.

If you have an outstanding car loan and choose to file for Chapter 7 bankruptcy, where all your debts are discharged, you will find that you have three different options: reaffirmation, redemption, and surrender.

Your first option is to reaffirm your debt. This option is only recommended if you are current on your car payment and don’t foresee becoming unable to continue making payments. If you reaffirm your debts your lender will create a new agreement allowing you to continue making regular payments. If you fall behind on your payments later the lender reserves the right to sue you and/or repossess the vehicle.

If you opt for redemption you will end up making a lump sum payment to the car lender, usually reflecting the fair market value of the vehicle in question. If you owe more than the fair market value the difference can then be discharged during your Chapter 7 filing and you will be able to keep the car.

Those who are far behind on their car payments and can’t afford redemption may need to simply surrender the vehicle. If this is the case, the lender will attempt to sell your car and sue you for the difference between the sale price and what you owed. This debt will be discharged during your bankruptcy proceedings.

If you are planning to file for Chapter 13 bankruptcy your petition will virtually stop any repossession attempts your car lender may have put in action. During the bankruptcy proceedings you will have one of two options: a 910 claim or a cram down.

If the car is under 30 months old (or 910 days) you will end up paying the bank the total amount due. The courts may, however, opt to force your lender to lower your interest rate or renegotiate the terms of your loan so that they are more affordable based on your new post-bankruptcy budget.

If the car is over 30 days old the courts will order you to pay the lender the current value of your vehicle, regardless of whether or not your loan balance is higher. You’ll negotiate a new repayment plan with your credit to ensure your payments for that amount are manageable.

You may opt to surrender your vehicle at any time, regardless of the type of bankruptcy filing you choose. Your bankruptcy lawyer will help you to determine which filing and course of action is best for your personal and financial situations!