Car Loans are not Discharged in Chapter 7 Bankruptcy

There are two types of debts – secured and unsecured debt. Credit card bills and medical bills are considered unsecured debts and can be discharged when you file for Chapter 7 bankruptcy. Secured debts including mortgages and car loans, are not able to be discharged through Chapter 7 bankruptcy.

The main difference between two types of debt is that secured debts are secured with collateral – such as the house or the car.

When you are behind on making your car payments, you run the risk of having your car repossessed by the company that gave you the loan. Your best bet is to contact an experienced bankruptcy lawyer who will explain your options. However, one choice may be to sell the car to repay what you owe in behind payments. Keep in mind that you may be forced to sell the car for less than you owe on the secured loan. If that happens, you will still have to pay the lender the remaining amount.

One important thing to note: If you do get left with money owed on a car that’s been repossessed, the debt owed will be considered unsecured debt. Therefore, if you file for Chapter 7 bankruptcy, the deficiency balance can be discharged. Talk to your bankruptcy lawyer about how to make sure this debt is discharged as part of your bankruptcy since it may not be an automatic discharge.

The bankruptcy lawyers at Garland & Mason, L.L.C. have helped countless people through the bankruptcy process. Contact us today for a consultation about your personal situation.

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