For many individuals considering bankruptcy, a vehicle is essential for work, family responsibilities, and daily life. If you are filing chapter 7 bankruptcy in Nashville, TN and still making payments on a car loan, it’s normal to feel uncertain about what will happen next.
The good news is that Chapter 7 bankruptcy provides several options when it comes to an auto loan. Understanding those options can help you make an informed decision that supports both your immediate needs and your long-term financial recovery.
Understanding Chapter 7 Bankruptcy in Nashville, TN
Chapter 7 bankruptcy is designed to eliminate unsecured debts such as credit cards, medical bills, and personal loans, giving individuals a fresh financial start. When you file chapter 7 bankruptcy in Nashville, TN, an automatic stay immediately goes into effect, which stops most collection activity, including lawsuits, wage garnishments, and creditor harassment.
However, car loans are considered secured debts. This means the lender has a legal interest in the vehicle itself. As a result, filing bankruptcy does not automatically determine whether you keep or lose your car. Instead, you must choose how you want to handle the loan moving forward.
The three options are:
- Keep the car and continue making payments
- Reaffirm the car loan
- Surrender the vehicle
Each option has advantages and potential drawbacks, depending on your financial situation.
Keeping Your Car
Many people who file chapter 7 bankruptcy in Nashville, TN are surprised to learn that they may be able to keep their vehicle. If you are current on your car loan and can continue making payments, some lenders will allow you to retain the vehicle without requiring a reaffirmation agreement.
In this scenario, you continue making your monthly payments as usual. The lender keeps its lien on the vehicle, but you do not formally recommit to the debt through the bankruptcy court.
This option can be beneficial for individuals who need reliable transportation and are confident they can afford the ongoing payments.
Advantages of keeping the car:
- You maintain access to essential transportation
- You avoid taking on new personal liability for the loan
- You continue your normal payment routine
Potential risks:
- Not all lenders allow this option
- If you fall behind in the future, the lender may repossess the vehicle
Because lender policies vary, it is important to discuss this approach with a bankruptcy attorney before relying on it.
Reaffirming a Car Loan
Reaffirmation is a formal agreement between you and the lender stating that you will continue to be personally responsible for the car loan after your bankruptcy case is completed. This agreement must be filed with the court and approved as part of your chapter 7 bankruptcy in Nashville, TN.
By reaffirming the loan, you keep the vehicle and continue making payments under the original or modified loan terms. However, reaffirmation carries significant legal consequences.
Benefits of reaffirmation:
- Legal certainty that you may keep the vehicle
- Clear terms for ongoing payments
- Continued reporting of payments to credit bureaus
Important considerations:
- The debt is no longer dischargeable
- If you default later, the lender may pursue collection efforts, including lawsuits
- You assume long-term financial risk
For some individuals, reaffirmation makes sense — particularly if the vehicle is essential and the loan terms are reasonable. For others, reaffirming may undermine the financial relief bankruptcy is intended to provide.
Surrendering a Vehicle
If your car payment is unaffordable or the loan balance significantly exceeds the vehicle’s value, surrendering the car may be the most practical option.
When you surrender a vehicle during chapter 7 bankruptcy in Nashville, TN, you return it to the lender. Any remaining loan balance after the vehicle is sold is typically discharged, meaning you are no longer legally responsible for it.
Reasons to consider surrendering a vehicle:
- Monthly payments strain your budget
- The vehicle is unreliable or nearing the end of its lifespan
- You owe more than the car is worth
Advantages of surrender:
- Elimination of the car loan debt
- Reduced financial stress
- Opportunity to rebuild finances without a burdensome payment
While losing a vehicle can be challenging, many individuals find that surrendering an unaffordable car helps them regain long-term financial stability.
Choosing the Right Option for Your Situation
Deciding how to handle a car loan during bankruptcy is a highly personal decision. Factors to consider include:
- Your income and monthly expenses
- The value and condition of the vehicle
- The remaining loan balance and interest rate
- Your need for dependable transportation
A qualified bankruptcy attorney can help evaluate these factors and explain how each option may affect your financial future.
How Rothschild & Ausbrook Can Help
Rothschild & Ausbrook has decades of experience helping individuals and families in the Nashville area navigate Chapter 7 bankruptcy with clarity and confidence. Our team takes the time to explain each option, answer questions honestly, and help clients make informed decisions about assets such as vehicles.
If you are considering bankruptcy and want to understand your options, contact us at Rothschild & Ausbrook to schedule a consultation and take the first step.
