When a Michigan resident purchases a new car but then has difficulty making the monthly payments, giving up the car could still leave money that must be paid on the loan. If the lender sells it after a repossession for less than the loan balance, the remainder is called a loan deficiency. The lender can sue for it, or it could be taken by wage garnishment or other means. One option to eliminate a car loan deficiency is bankruptcy.
Bankruptcy can eliminate some types of debt, including a car loan deficiency. Bankruptcy filing stops most creditors from making any attempts to collect money owed. While some things aren’t covered by bankruptcy, including student loans, many debts are wiped out in Chapter 7 bankruptcy. Assets are liquidated to pay creditors, but some assets are excluded from liquidation. Usually the debtor’s home is excluded and often a primary vehicle is excluded, so it could be possible to keep a car by filing for bankruptcy. The lender may be willing to allow a new payment plan with lower payments for the car rather than repossessing it.
The decision to file is one that will likely have a major impact on a person or couple’s financial future. Chapter 13 is another option, which instead of liquidating assets lets the debtor make affordable payments for a few years to pay off some of thedebt before the remainder of it is discharged.
If someone has given up their car and then filed for bankruptcy, getting a new car loan or other credit could be difficult because bankruptcy stays on someone’s record for up to 10 years. To help make a decision about bankruptcy or other options for debt relief, a person who is facing overwhelming bills could consult an attorney to learn about the available choices.