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How you protect a financed vehicle when you file for bankruptcy

When someone files for bankruptcy, they will they can ask the courts to discharge the remaining balance on their unsecured accounts. In Chapter 13 proceedings, the person filing will have an opportunity to potentially renegotiate some of their debts to secure more favorable terms. Those who file for Chapter 7 bankruptcy won’t have as much leverage when negotiating with creditors.

For those with a financed vehicle, personal bankruptcy can leave this very important asset in an awkward legal gray area. They cannot discharge the debt without putting their ownership of the vehicle at risk, and they may not want the long-term financial obligations that come with a Chapter 13 repayment plan.

How can you protect your ownership interest in a financed vehicle during personal bankruptcy proceedings?

You can reaffirm the loan

If you aren’t in a position to renegotiate your vehicle loan and you need to retain your vehicle, you can reaffirm your existing loan. Reaffirmation is the legal process through which you agree to continue repaying the debt according to your original contract rather than attempting to negotiate different terms or discharging the debt in your bankruptcy.

You will have to fulfill the same responsibilities to the lender as before, but you will be able to ensure ongoing ownership without any major challenges. You will make the same payments you previously did and retain some, if not all, of your equity in the vehicle. You also won’t have to worry about refinancing the vehicle at a time when your credit will be very poor because of your pending bankruptcy.

Is your equity at risk?

Oklahoma residents filing Chapter 7 bankruptcy can exempt some of their personal property. State law allows you to protect up to $7,500 in vehicle equity. You may need to refinance the vehicle and withdraw excess equity to repay creditors as part of your Chapter 7 proceedings.

Your total assets and the debts you owe help determine the best form of bankruptcy for your circumstances. Those with a newer financed vehicle and less than $7,500 in equity may find that bankruptcy helps them regain control over their budget while protecting their most important property.

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