I am still on a car loan with my ex-wife (ex-husband). What happens when I file bankruptcy?

It depends on what you want to happen.

Most likely, we will take you off of the car loan and discharge that debt.  Your ex-spouse is still on the hook for the full loan, and they will need to keep paying it or face repossession.  

Chapter 7

When we file a chapter 7 bankruptcy, we check a box that states whether we want to surrender a secured loan (like a car loan) or reaffirm and keep it.  With you own car, it is normal to check the box to reaffirm the debt and keep making payments on it.  With an ex-spouse, it is a bad idea to reaffirm that debt.  You should simply wipe out your liability on it and move on.  If they want to keep the vehicle, they’ll have to keep paying on it.

Now there are always exceptions.  Let’s say that as part of the divorce decree, you were ordered to keep up payments on her minivan, then maybe you should reaffirm it.  Or maybe you’re the only name on the loan, you still have a good relationship with her, and she is good at making the payments.  You can still reaffirm and keep it (although most attorneys don’t like you to reaffirm on anything).  But generally, we list it and wipe it out.

Chapter 13

In a chapter 13, it’s just about the same.  If you want to surrender your liability on the loan, you can do so.  If she wants to keep it, she’ll need to keep paying for it.  If you want to keep the loan yourself and keep paying on it, it may be a little more tricky.  The chapter 13 trustee will want a very good reason for you to keep this secured debt for something you don’t even drive.

Ex-Spouse Assumes Car Loan

Now I often get asked if you can list the loan in your bankruptcy and have your ex-spouse assume the loan with the bank.  This is a matter between them and the bank.  I have never actually seen it work, since divorce wrecks your finances and credit (and hers too).  It is possible, but very unlikely.