bankruptcy

File bankruptcy to get rid of car loan?

Justin HarelikDear Bankruptcy Adviser,
I had a vehicle loan with my ex-husband, and both names were listed on the car. When we were together, we could afford the "large" payment, but I cannot afford it on my own now. He filed bankruptcy and listed the vehicle, so he is no longer responsible for the car. I am now filing bankruptcy as well because I can't afford the loan payments. I also bought a "buy here, pay here" car that I could afford. Can I get in trouble when I try to list the car we had in bankruptcy since I have another vehicle with a small loan that I'm not putting in bankruptcy? The difference is $4,000 owed on the car I want to keep and $24,000 on the one I want to include in the bankruptcy. I am just really nervous and have never done anything like this. Help!
-- Anne

Dear Anne,
This sounds like a wise decision to me. You are going to reduce your financial burden quite a bit by relieving yourself of that huge car note. Smart move. Let's hope the new car is reliable, and you will be able to keep it for a while.

The vast majority of people file bankruptcy because of three major life events: divorce, unemployment or illness. In your case, you are now a single mother, and you decided that having a luxury car was not a prudent decision with your current financial situation. Rather than try to keep paying on a car that likely was worth a lot less than what you owed, you got something more affordable.

I suggest you surrender the more expensive vehicle prior to filing your case. Try to get the lender to pick it up right away so that you aren't dealing with two vehicles. The lender will take the car back, sell it and send you a bill for any balance remaining after selling the vehicle. You will still be able to wipe out that remaining balance, called a deficiency balance, in your bankruptcy case.

In the event you still have the vehicle after filing your case, please make sure you are current on your car insurance payment. Nothing could be worse than getting into an accident in that car after you file bankruptcy, only to learn your insurance lapsed. That post-filing liability could be your responsibility after the bankruptcy is over.

Ask the adviser

To ask a question of the Bankruptcy Adviser, go to the "Ask the Experts" page and select "Bankruptcy" as the topic. Read more Bankruptcy Adviser columns and more stories about debt management.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
CREDIT CARDS WEEKLY NEWSLETTER
Credit cards on a table

Get advice for managing credit cards, building your credit history and improving your credit score. Delivered weekly.

Debt Adviser

Is power of attorney status risky?

Dear Debt Adviser, I am so glad you recently posted a question about an elderly mother. My mother has dementia. Eight years ago, she opened a credit card for a family member who has now declared bankruptcy. My mother only... Read more

advertisement
Partner Center
advertisement

Connect with us