What happens to my car in bankruptcy if I have negative equity?

That is entirely up to you.

If we file a chapter 7 case, we can chose to give up the vehicle (surrender it back to the lender) and discharge your liability on the loan.  Or, you can reaffirm the loan, where you agree to make the same payments, same balance, and same interest rate.  You won’t lose the car unless you want to lose it.  The bankruptcy trustee won’t care either way, because there is no equity in the vehicle to interest him.

Just remember that your attorney may not sign off on the reaffirmation agreement if you have a negative budget and really can’t afford the payments.

Now in a chapter 13, it gets a little more complicated.  You can always surrender the car.  You may decide to keep it, and if you do, a chapter 13 lets your stretch out the loan to 60 months from the date of filing bankruptcy.  It also changes the interest rate to a nice low percentage rate (around 4%).  In some cases, you may even be able to do a 910 cram down, where you can cram down the current loan balance to the fair market value of the vehicle (if you’ve had the vehicle for more than 910 days on the original loan).

However, the trustee in a chapter 13 case may care whether or not you keep it.  If you income is $2,000 a month and you’re proposing to keep a new 2013 F350 with payments of $850 a month, the trustee may object and argue that it is not reasonable.  However, so long as there is no equity, even a 13 trustee won’t go after the vehicle.

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