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How should you deal with auto loans in a bankruptcy?

On Behalf of | Jul 12, 2021 | Bankruptcy |

New Jersey repo agents take back cars when the borrowers fall behind on their payments and can’t negotiate a settlement of the past due amount with the lender. If this happens to you, a bankruptcy might make the outstanding balance go away.

What you owe versus the car’s value

When a lender chooses to repossess your car, they will sell it at auction. These auctions typically do not fetch the highest price for the vehicle. Therefore, the proceeds may not be enough to pay off the entire loan. This leaves you with a balance due, a debt which the company could pursue or sell to a collection agency.

Bankruptcy is a suitable tool for getting rid of car debt

If you do not plan to keep your vehicle, letting the repossession take its course could be in your best interests. The lender presents you with a final bill, which you can then include in a bankruptcy petition. There, it joins other outstanding debts to be discharged such as medical bills or credit card balances.

What to do when you want to keep the car

If you still have possession of the car and do not want to include it in a bankruptcy, you might file a reaffirmation agreement. It asks the bankruptcy court to remove the debt from the bankruptcy, which means that you have to continue paying for it.

If this car is your daily driver and you need it to get to and from work, it may be a good idea to keep it. After the bankruptcy, it could be difficult or impossible to replace it with another car that is in good condition. However, remember that keeping the car means keeping the debt. If you are currently considering a bankruptcy and are unsure how to handle your auto debt and other items, you might wish to speak with a lawyer who can help you think through your options.