Attorney at Debt Advisors Law Offices
Practice Areas: Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Stop Foreclosure
Filing for bankruptcy can be challenging. This is especially true if you’re concerned about what will happen to your assets, like your car. For many Wisconsin residents, a car is essential for daily life whether for commuting, family errands, or other personal needs. If you’re worried about how bankruptcy might affect your car loan, this guide will help you understand your options, whether you file for Chapter 7 or Chapter 13 bankruptcy.
At Debt Advisors Law Offices, we provide clients across Wisconsin with clear, straightforward information about bankruptcy. We’ll explain what happens to your car loan in bankruptcy and what options may help you keep your vehicle while finding financial relief.
Not all debts are handled the same way in bankruptcy. A car loan is typically a secured debt backed by collateral (the car itself). If you don’t keep up with your loan payments, the lender has the right to repossess the vehicle.
However, bankruptcy laws offer potential solutions to keep your car or alleviate its debt burden. In the U.S., most individuals file for either Chapter 7 or Chapter 13 bankruptcy. Each type has unique impacts on secured debts, including car loans.
Chapter 7 bankruptcy, often called liquidation, involves selling non-exempt assets to pay creditors. While this can sound daunting, it doesn’t always mean losing your car. In Chapter 7, you generally have three main options:
You may reaffirm the loan if you want to keep your car and can continue making payments. This means signing a new agreement with your lender to keep paying, and the debt will not be discharged.
Redemption allows you to pay the lender the current market value of the car instead of the full loan balance. This is useful if your loan exceeds the car’s actual value. Redemption requires a lump sum payment, which may be possible with cash or a redemption loan.
“Under 11 U.S. Code § 722, debtors may redeem personal property from secured liens by paying the fair market value, a beneficial option for many Wisconsin residents with high-interest car loans.”
If keeping the car no longer makes sense financially, you can surrender it to the lender. The debt tied to the car loan will be discharged, allowing you to walk away. This may be the best option if payments are too burdensome or if the car is worth far less than what you owe.
“Wisconsin bankruptcy exemptions allow debtors to protect up to $4,000 of vehicle equity, helping many residents retain essential transportation.”
Chapter 13, also known as reorganization bankruptcy, works differently. Instead of liquidating assets, it allows you to restructure debt under a repayment plan that lasts 3–5 years.
Car loans can be folded into your Chapter 13 repayment plan. This spreads out payments over the term of the plan, potentially lowering monthly payments and interest rates. Speaking with a knowledgeable Milwaukee bankruptcy lawyer can help you determine whether this option is the best way to manage your vehicle debt while keeping your car.
If you’ve had your car loan for more than 910 days (about two and a half years), Chapter 13 bankruptcy allows for a cramdown. This reduces the loan balance to the car’s fair market value, lowering the total debt you must repay.
|
Option |
Chapter 7 Bankruptcy |
Chapter 13 Bankruptcy |
| Reaffirmation | Keep the car and continue payments | N/A |
| Redemption | Pay market value in lump sum | N/A |
| Surrender | Return the car, debt discharged | Return the car, may be included in repayment plan |
| Loan Restructure | N/A | Spread payments over 3–5 years |
| Cramdown | N/A | Reduce loan to car’s market value (if >910 days old) |
Reality: Bankruptcy affects your car loan, but you may still keep the vehicle by reaffirming, redeeming, or restructuring payments.
Reality: Bankruptcy doesn’t simply erase secured loans. Options like surrendering the car discharge the debt, but you lose ownership. In Chapter 13, debt is restructured, not eliminated.
“Nationally, nearly 65% of personal bankruptcy filers have secured loans, such as car loans, underscoring the need to understand options for car ownership.”
You won’t automatically lose it. Options include reaffirmation, redemption, or surrender in Chapter 7, and restructuring or cramdown in Chapter 13.
Yes, if you can reaffirm the loan or redeem the vehicle and manage the payments.
It allows you to restructure payments over 3–5 years and may reduce the balance with a cramdown.
Not necessarily. Surrendering discharges the debt but you lose the vehicle. Restructuring helps you keep it while paying reduced or reorganized debt.
Yes. Wisconsin’s bankruptcy exemptions protect up to $4,000 in vehicle equity, which can help you keep your car.
Bankruptcy can provide relief from overwhelming debt, but understanding what happens to a secured loan such as a car loan is crucial. Both Chapter 7 and Chapter 13 offer paths to either keep the car, restructure payments, or surrender the vehicle if needed.
If you’re a Wisconsin resident facing bankruptcy and concerned about your car loan, guidance from an experienced Wisconsin bankruptcy attorney can help you make the right decision.
Schedule a free consultation with Debt Advisors Law Offices today to review your situation and explore the best way to handle your car loan during bankruptcy.
Learn about bankruptcy protections, types of bankruptcy, how to get started, what to expect, and who to trust. Filing bankruptcy is the ONLY way to completely eliminate debt. If bankruptcy is right for you, it offers powerful protections that cannot be achieved through alternative solutions such as hardship relief, loans, or debt settlement.
