Should I surrender my car in bankruptcy?

3,327 families filed bankruptcy using Upsolve.

Written by Kristin Turner.  
Updated January 2, 2020

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In many cases, surrendering your car in bankruptcy can be a great idea, although there are some drawbacks.  Here is a list of pros and cons of surrendering your vehicle after filing. 

Pros. The benefits of surrendering a vehicle in bankruptcy include:

  • You can walk away from the car owing nothing, which is beneficial if the car is worth far less than you owe on it or if it’s in need of repair.

  • You can reduce your expenses by giving up a costly car payment that you can’t afford.

  • You can give up a leased car without having to pay for excess mileage or wear and tear.

Cons. Here are some of the downsides to surrender your car:

  • You'll need to find another mode of transportation.

  • If you buy a new car and have to get a loan for all of part of the purchase price, it’s likely that your loan will come with a very high-interest rate because of the bankruptcy.

  • You might end up with a car that isn’t as reliable as the vehicle you turned in.

Process for Surrendering Your Car

You’ll let the court and the lender know of your decision to let go of the car in your Statement of Intentions. The creditor must obtain permission from the court before repossessing the vehicle by either filing a motion asking the judge to lift the automatic stay or, by getting your agreement to do so. Alternatively, the bank can simply wait until the automatic stay expires with respect to your car loan, which happens 45 days after the date for your creditors’ meeting if no reaffirmation agreement was signed or until the stay automatically terminates when your discharge is granted. Once the stay is lifted or has been terminated, the creditor can repossess the vehicle, or you can voluntarily turn the vehicle into the creditor at an agreed location. The creditor will sell the car at auction but, if it doesn’t sell for the amount you owe, you won’t be responsible for the balance. It will get wiped out in your bankruptcy case.

Example. Jane has a luxury SUV that she can no longer afford because she became ill and can no longer work. Her car payment is $500 per month. When she files Chapter 7 bankruptcy, she surrenders the car and is no longer responsible for the car payment.

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

To learn more, read why we started Upsolve in 2016, our reviews from past users, and our press coverage from places like the New York Times and Wall Street Journal.

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