A commonly overlooked benefit of bankruptcy is how it can modify the obligations you owe on your motor vehicles / automobiles.  Many people who come to see me about bankruptcy have not thought out prospective bankruptcy options about their automobiles.  Rarely do they bring this up unless they are in the process of having a vehicle repossessed.  Aside from stopping a repossession, there are other benefits bankruptcy can provide with regard to easing your financial obligations related to your automobiles.

In both chapter 7 and chapter 13 cases, you can return a vehicle to the bank and eliminate 100% of the debt tied to the vehicle.  The bank will not be able to pursue you for any deficiency, ever, period.

For example, suppose you owe $19,000 on a car that is worth only $8,000.  If you keep the car, you are $11,000 upside down with negative equity and you still have to make car payments.  Under either chapter 7 or chapter 13 bankruptcy, you can give the car back to the bank.  Your loan is eliminated and you get right side up immediately.

Another option would be to simply pay the bank, in one payment, the $8,000 that the car is worth.  You would then be able to keep the car and eliminate the $11,000 negative debt, i.e. the amount you are upside down on the car.   You could either borrow the $8,000 from a friend or relative or get a new loan from a financial institution for the $8,000.  There are financial institution that specialize in making these types of loans for bankruptcy cases.

Another option that may be available to you under a chapter 13 bankruptcy, depending on how long you have owned the car, is to force the bank to accept the $8,000 for the vehicle and pay that $8,000 off over the life of the bankruptcy plan.  For example, you could end up with a payment as low as $135 per month.