“Most people have a car loan when they file bankruptcy, so the old and new bankruptcy laws address loans on vehicles. Unfortunately, the new laws are tougher on debtors in terms of how much you must repay on your outstanding loan. This forces the debtor to pay the full amount for loans that even have excessive interest rates.
Under the old bankruptcy laws, debtors only had to repay the value of the vehicle they owned. That meant you only had to pay back the current resale value and not the retail value of the vehicle. Under the new law, if you have had a loan placed on the car within the last 3 years, you will have to pay the full amount of the loan.
This is one of the most significant changes in the new bankruptcy law. Under the old law, the courts would have determined the real value of the car and then figured up what you had paid to date and what you would owe in payments to reimburse to that value. Under the new law, you have to pay the full amount or lose the car.
This means that if you took out a loan at a high interest rate, you will still have to pay back the full loan. In effect, you are paying 2 or 3 times what the car is worth. This law change made it most difficult on those who had to accept less than desirable car loans in order to obtain a vehicle. Of course, under a chapter 7, you can surrender the car if you simply cannot afford to make the payments. But once again, that makes it difficult to recover from a bankruptcy when you have no car to drive. Under a chapter 13, the car loan payment is included in your repayment plan.
Speaking of bankruptcy car loans, you will probably be inundated with car loan offers once your bankruptcy is discharged. You won’t ask for the information, but plenty will show up in your mailbox. Auto dealers know many people surrender their cars and need a vehicle, and so they track bankruptcy court records to find out who has filed. The letters claim to want to help you rebuild your credit, but you must be very careful. Odds are the car loan will be charged a premium interest rate because of your credit rating.
The good news is that if you can afford to buy a car, and don’t have one, the bankruptcy will not stop you from finding interested lenders. It’s important to remember though that you don’t want to start creating new debt that you cannot afford to pay. You cannot file another chapter 7 for 8 years or a chapter 13 for 4 years. New creditors see themselves as first in line again in terms of collection status.”