Bankruptcy and Your Vehicle Loan in New York

Filing for bankruptcy can be a daunting process, especially when it involves your vehicle loan. In New York, understanding the implications of bankruptcy on your vehicle loan is crucial for making informed decisions during a challenging financial time.

When you file for bankruptcy in New York, you can pursue either Chapter 7 or Chapter 13 bankruptcy. Each option has distinct consequences for your vehicle loan, so it’s important to know how they differ.

Chapter 7 Bankruptcy: This type of bankruptcy is often referred to as “liquidation bankruptcy.” When you file for Chapter 7, most of your unsecured debts can be discharged, providing you with a fresh start. However, if you have a secured loan on your vehicle, such as a car loan, your car may be at risk of being repossessed if you cannot keep up with the payments.

If you want to retain your vehicle, you’ll generally need to continue making payments while in bankruptcy. In New York, the bankruptcy exemptions allow you to protect a certain amount of equity in your vehicle, typically up to $4,350 for a single filer. If your vehicle’s equity exceeds this cap, it might be at risk of being taken by the bankruptcy trustee.

Chapter 13 Bankruptcy: This form of bankruptcy is designed for individuals with a regular income. It allows you to create a repayment plan over three to five years to pay back some or all of your debts. Importantly, Chapter 13 offers greater protection for your vehicle. Under this plan, you can keep your car and catch up on missed payments without the threat of repossession.

During Chapter 13 proceedings, you can also “cram down” your loan. This means if your vehicle is worth less than what you owe on the loan, you can reduce the amount owed to the vehicle’s market value, provided you meet certain conditions. For example, if your vehicle is worth $15,000, but you owe $20,000, you may only need to pay back $15,000 through your repayment plan, which can significantly reduce your overall debt.

Effects on Credit Score: Filing for bankruptcy, whether Chapter 7 or Chapter 13, will have an impact on your credit score. Chapter 7 stays on your credit report for 10 years, while Chapter 13 remains for 7 years. This may affect your ability to obtain future vehicle loans or refinancing options.

It’s important to remember that bankruptcy is not the end of financial stability. After the bankruptcy process, focusing on rebuilding your credit can lead to more favorable loan options in the future.

Consult with a Professional: Navigating bankruptcy law is complicated, and the specifics can vary greatly depending on individual circumstances. Consulting with a bankruptcy attorney in New York can help you understand your options and help devise a strategy that best suits your financial goals. They can provide guidance on keeping your vehicle and managing your vehicle loan through the bankruptcy process.

In summary, handling a vehicle loan during bankruptcy in New York requires careful consideration of the type of bankruptcy you choose. Whether you file for Chapter 7 or Chapter 13, understanding your rights and options can help you make the best decision for your financial future.