Car Loan ConceptAlthough filing for Chapter 7 bankruptcy doesn’t offer a way to get current on your late car payments. It could stop your car from being repossessed temporarily or free your other sources of income that you could then use for catching up on your car payments.

What Happens to Your Vehicle in When You File for a Chapter 7?

First, you have to understand that your auto loan is a secured debt that has two components — your responsibility to repay your loan and a lien. As your lender has a lien on your vehicle, it could repossess your vehicle if you don’t repay your loan on time.

Will Chapter 7 Help You Repay?

While a Chapter 7 doesn’t specifically provide a way for you to repay your late auto loan payments, it could reduce your debt. If you could discharge some of your debt through Chapter 7, a bankruptcy attorney in Utah states that you might free up some cash you could use for your late payments and ensure that you have more for ongoing payments going forward. Chapter 13 bankruptcy does allow you to pay off your late car loan payments via your repayment plan.

In addition, you could also consider asking your car loan lender if you could work together to create a more affordable repayment plan. For instance, you could request for permission to repay extra money for a couple of months until you catch up on your late payments or put overdue payments onto the end of your loan agreement. Although your lender isn’t legally obliged to work with you, it would be getting more if you pay off your entire loan.

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Yes, filing for Chapter 7 would release you from the obligation of repaying your auto loan, but your lender’s lien would remain. Your lender could repossess your vehicle if you don’t repay your late payments and continue paying for the duration of the loan.

Fortunately, you might be able to discharge your debts so you’ll have money to make good on your due payments or work out a repayment plan with your lender.