Can I Keep My Car in Chapter 7 and Change My Mind Later?

Here’s one of the big advantages of Chapter 7 bankruptcy. You can keep paying on your car now, but then change your mind and give it back later.  You can give it back later without hurting your credit; and without owing any money.

Why Would You Do That?

I see a lot of people who are in terrible car loans. They had to buy a car for some reason after they had already wrecked their credit, and the car loan is 22.9% up to maybe 29.9%. Terrible. But right now that terrible car loan is for the car that’s the only way to get around.

For now, keeping that car is better than walking to work. (I always encourage people to consider whether they can borrow a car, or save and buy a hoopty.)

In two or three years, you’ll have much better credit and can get a much better car.

In two or three years, you’ll have good credit.  Much better credit than you had when you bought that last car.  You can give back the car with the bad loan and go buy a newer car with a much better interest rate.

The same strategy would apply if in a few months, or years, a family member or friend makes a car available.  Or the car you got breaks down and you have to do something.

Why does this work?

When you file Chapter 7 bankruptcy,  you don’t have to pay the car loan. Now you don’t get a free car–the car still has to pay, but you don’t have to. That puts you “in the drivers seat.” You want to keep paying as long as that car is worth that payment. But once you stop, the bank can’t come after you; they can only repo the car.

(Now that’s the rule unless you reaffirm the car loan. There are sometimes good reasons to reaffirm if the car is with Ford Credit or with your credit union. But Ford Credit and your credit union would not be where you are getting a 29.9% car loan.)

How Long does this Apply? What’s My Deadline for Giving Back the Car?

Once the car is paid for, you can’t give it back. That’s your only deadline.

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