Will bankruptcy wipe out my car loan and let me keep my car?


In bankruptcy, if you want to keep your financed vehicle, then you need to keep paying for it.  Bankruptcy will not wipe out (discharge) the loan amount and allow you to keep the vehicle free and clear.

Yesterday afternoon I received a call from a potential client who wanted to file bankruptcy on her $36,000 truck loan because the payments were over $600 a month.  I said that we could definitely do that.  She then asked when they would send her the title.  At that point, I realized that we had a problem with the concept of bankruptcy and secured debt.  

In most cases, bankruptcy (especially Chapter 7) will wipe out almost all of your debts, with the exception of certain priority debts like taxes, student loans, child support/alimony, and criminal restitution.  However, some people want to keep their secured debts.  A secured debt is a debt that you owe that is secured by a thing:  a mortgage is secured by a home, a car loan is secured by a car (plus they hold your title as a lienholder) , and your kirby vacuum is secured by a financing agreement filed with the state.

If you want to keep your thing secured by a secured debt, then you need to keep paying on that debt.  So if my potential client wants to keep her truck, then she needs to keep the $36,000 loan attached to it.  She cannot file a bk and then receive title to a $36,000 truck for free.  If she wants that title, then she needs to eventually pay off the secured loan.

To be clear, bankruptcy can wipe out your personal liability on those debts, but the secured debts are still attached to the stuff (collateral) you financed.  You cannot wipe out a secured debt and just walk away with a clean car title or even get rid of your entire mortgage.