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Surrendering your car to the lender is pretty straightforward: you owe money on your car and would like to be excused from paying that money back. Rather than being required to continue paying on the terms of your loan, you can simply give the car back to the lender and call it a day. The balance that you owe on the loan will be wiped away with the rest of your dischargeable debts in bankruptcy.
Whether surrendering your car is a good idea will depend on your particular financial situation.
If you surrender your car:
You can walk away from the car owing nothing,
You can reduce your expenses by giving up a costly car payment that you can’t afford, or
You can give up a leased car without having to pay for excess mileage or wear and tear.
You will need to find another mode of transportation,
If you buy a new car, it might be difficult to get financing, and,
if you are able to get financing, your loan will probably come with a high interest rate because of the bankruptcy.
In general, surrendering your car can be a good option when you owe significantly more than the car is worth. It also makes sense when you cannot afford your car payments and need to give yourself a bit of financial breathing room.
Surrendering your car probably does not make sense when the car is worth substantially more than you owe, and when you can afford to continue making payments.
If you choose to surrender your car, you’ll let the court and the lender know when you fill out your Statement of Intention form in your bankruptcy paperwork. Once you file, the lender 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. Otherwise, the creditor must wait until the case is over (and the automatic stay is no longer in effect) before repossessing the vehicle.
Once the court lifts the automatic stay, the creditor can repossess the car, or you can voluntarily turn the car over to 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. Any remaining debt will be wiped out in your bankruptcy case.
What you choose to do with your car in your bankruptcy is entirely up to you, and a choice that made sense for someone else may not make sense for you. We at Upsolve do not recommend any particular way forward, but we hope that this article and others we have written on the topic of secured debt gives you the tools you need to make an informed decision.