Keep reading to find out what to expect if your car is repossessed after filing Chapter 7 bankruptcy. Written by Attorney Jenni Klock Morel. Filing for Chapter 7 bankruptcy can erase your personal liability to pay back your car loan, but it can’t erase the lien your creditor has against the vehicle.

What happens to a judicial lien when you file bankruptcy?

It’s your responsibility to pay the entire debt. Bankruptcy wipes out your personal liability for the debt, assuming that it qualifies for the bankruptcy discharge. This means the creditor cannot later sue you to collect the debt and use the judicial lien (see above) to garnish your wages or take money out of your bank account.

Can a garnishment on a car loan be erased?

And if the debt for which you are being garnished is dischargeable like a credit card debt or an old car loan, then it will be erased in the bankruptcy process, which ends the garnishment permanently. Even though the automatic stay stops most collection activities, there are a few exceptions.

Can a creditor refuse to pay a wage garnishment?

If your monthly income and living expenses don’t allow you to offer a payment plan that pays at least as much as what they’re getting through the garnishment order, the creditor is not likely to agree to it. Once the judgment is entered and the court orders a garnishment, you’ll receive a copy of the order at the time it’s sent to your employer.

Your Car in Chapter 13 Bankruptcy. If you file for Chapter 13 bankruptcy, you’ll pay your disposable income (the amount remaining after paying allowed expenses) to your creditors for three to five years. You can use Chapter 13 bankruptcy to repay many different types of debt, including car loans.

Can you exempt a car from Chapter 7 bankruptcy?

If you have unprotected equity, the trustee can sell your car, give you your exemption amount, and distribute the remaining amount to your creditors. Example 1. Joseph owns a Toyota Corolla worth $7,000. He still owes $5,000 on his car note. His state allows debtors to exempt up to $5,000 in equity.

Can a car loan be discharged in Chapter 13 bankruptcy?

You can use Chapter 13 bankruptcy to repay many different types of debt, including car loans. Here are some choices you and your attorney will consider. Surrender the car. Just like in Chapter 7 bankruptcy, if you give your car back to the lender and complete your Chapter 13 plan, the bankruptcy will discharge any remaining loan balance.

Can you get a shorter car loan in bankruptcy?

For instance, you’ll likely be able to stretch out a shorter car loan to the full five years of the plan. Also, if you’ve had the car loan at least 910 days (two and a half years) when you file your bankruptcy, you might even be able to “cramdown” the loan amount.