Four Bankruptcy Options Regarding Your Car

when filing for bankruptcy, you generally have four options for dealing with your car, and surrendering it is often the recommended choice if the loan is unaffordable or the car is worth much less than what you owe.

Let’s break down all four options, and why surrendering may be the smartest move in many cases.

🚘 1. Surrender the Car (Recommended if Loan is a Burden)

What it means: You give the car back to the lender, walk away from the loan, and discharge any remaining balance in bankruptcy.

✅ Best if:

• You’re upside down (owe more than the car is worth)
• The interest rate is high
• The car has costly repairs
• You can’t afford the monthly payments

💡 Why it’s recommended: It wipes out both the loan and any deficiency balance, giving you a clean slate. You can often finance a different vehicle after discharge — sometimes with better terms than the one you’re surrendering.

🚗 2. Reaffirm the Loan (Keep the Car and Keep Paying)

What it means: You sign a reaffirmation agreement, agreeing to remain liable for the car loan even after bankruptcy.

✅ Best if:

• You’re current on payments
• You love the car
• It’s worth close to what you owe

⚠️ Warning: If you miss payments later, you can be sued, repossessed, and stuck with the debt — even though you went through bankruptcy.

🔁 3. Redeem the Car (Pay the Current Value in One Lump Sum)

What it means: You pay the fair market value of the car (not what you owe) in one payment to the lender, and the title is yours free and clear.

✅ Best if:

• You owe much more than the car is worth
• You can come up with the cash (from savings, a loan, or a family member)

⚠️ Rarely used because most people filing for bankruptcy don’t have a lump sum on hand.

🛡️ 4. “Ride Through” (Just Keep Paying Without Signing Anything)

What it means: You keep making payments, but don’t sign a reaffirmation. Not officially recognized in all jurisdictions.

✅ Best if:

• Your local bankruptcy court allows it
• You’re not comfortable reaffirming

⚠️ Risky if your lender insists on reaffirmation or wants to repossess anyway.

🧠 Why Surrendering is Often the Smartest Move

When someone recommends surrendering, it’s usually because:

• You’re struggling with a high loan payment
• The car is underwater
• You can replace it later under better terms
• You’re trying to reset your finances, not keep the same burdens