In recent posts, I have discussed options available regarding financed cars in the context of a chapter 7 bankruptcy, such as reaffirmation and redemption. This article sets forth the third main option available: surrendering a financed vehicle through bankruptcy when it does not make financial sense to hold on to the vehicle.
IN BANKRUPTCY: Surrendering a vehicle through bankruptcy absolves any financial liability of the borrower to the lender. In the bankruptcy schedules, the borrower or consumer indicates that he or she will be surrendering the vehicle through the bankruptcy process, and we make arrangements to deliver the car or have the car picked up by the lender (usually about 60 days out from the bankruptcy filing date or before). If there is a co-borrower on the secured loan, that co-borrower will still be financially liable for the car despite the primary borrower filing bankruptcy. Of course, at this point, the co-borrower can file bankruptcy for himself or herself.
OUTSIDE OF BANKRUPTCY: If a car were to be repossessed or surrendered due to non-payment and the borrower has not filed bankruptcy yet, the secured lender, once in possession of the vehicle, would most likely sell the vehicle at auction for generally a lot less than is owed, rendering a deficiency, or an amount owed by the borrower (amount of loan minus what the car was sold for at auction). The lender could then sue the borrower for the deficiency, and obtain a deficiency judgment. This deficiency judgment could of course be included in a bankruptcy.
If you are interested in finding out more about bankruptcy and how you can surrender a vehicle (and absolve any financial liability) or obtain relief from a vehicle deficiency judgmemt, please contact me to set up a free in-office bankruptcy consultation.