In a bankruptcy, the debtor, the person who owes debts and is filling for bankruptcy, often has to surrender assets in order to satisfy the creditors who need to have their debts paid, at least in part under a bankruptcy proceeding.

Secured Loans

A car, like a house, is a “secured” piece of property.  Secured loans are loans that are “secured,” in that the creditor has a security interest in the property that is subject to the loan.  That is, a car can be repossessed by a creditor if the loan is not paid back by the debtor.  Or, a home can be seized by the bank that mortgaged the property if the property is foreclosed on for failure to pay the mortgage bills.

Choosing Whether to Surrender a Car or Not

In Chapter 7 bankruptcy, which often results in liquidation, or sell-off, of the debtor’s assets to satisfy the debts of their creditors, a debtor can choose to either retain his car or sell it off as part of the assets that are liquidated.

Debtors must choose whether to give back or keep a car that is under a lease or under a loan.  In bankruptcy proceedings, the judge will forbid creditors from seizing the assets of a debtor during the bankruptcy as part of the traditional collections process.  The bankruptcy judge is the only person who can authorize that property or money be paid out to creditors.

There are positives and negatives to giving up your car in bankruptcy.  There are several benefits to giving up the car.  In giving up the car, the debtor often can then be released from the debts.  In exchange for giving up the car, the creditor must surrender his claims against the debtor.  Also, a debtor can reduce expenses by giving up a recurring car payment that is unaffordable.

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On the other side, there are potential cons to giving up a leased or loaned car.  Of course, the biggest issue is that by giving up the car, the debtor is likely losing his or her primary mode of transportation.  If the debtor has another car that is fully owned, then, of course, that may not be a significant problem, or it may mean that the debtor has to work with family members to get around.

If the debtor plans to buy a new car in the near future, the debtor will likely face high interest rates in the loan they request as a result of the bankruptcy.  Also, as a result, the debtor may not be able to afford as nice of a car as he would like (or possibly as nice as the car that was surrendered).  It may also mean that car dealers could refuse to lend to the debtor, forcing him to look elsewhere for a car loan.

Ask Personal Bankruptcy Questions to Our Massachusetts Bankruptcy Attorneys

Bankruptcy law is very complex and the outcomes of each case are extremely important to the debtor and creditors involved in each case.  To answer more questions about bankruptcy law in Massachusetts, please contact the Law Office of Brian R. Lewis.