What happens to my written-off car loan during bankruptcy?


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When it comes to a written off car loan, what happens to your car and the loan during bankruptcy depends on the status of your car loan, the bankruptcy you choose, and your willingness to pay to keep the vehicle.

Amortized car loans

Write-offs are unpaid debts classified as “bad debts” following multiple missed or late payments or unsuccessful attempts by the creditor to collect. A written-off debt is a debt that the lender has taken out of his books and then closed the account.


A written-off car loan, like a written-off debt, is sold by the original lender. However, just because it charges doesn’t mean you are no longer responsible for paying for it. The loan is usually sold or transferred to another lender or collection agency, and they try to collect the debt from you.

Some car loans can be canceled without the vehicle being taken back. Not all write-offs are tied to repo, and things can get complicated when it comes to bankruptcy.

Bankruptcies and write-offs

What happens to my written-off car loan during bankruptcy?When it comes to a written off car loan, whether you want to pay off the debt during bankruptcy or not, you should include it in your paperwork when you first apply. To do this, you must state the debt as secured or unsecured.

If you have written off a car loan and you file for bankruptcy, the debt can be forgiven if the vehicle is taken back. Car loans are secured debt, and the vehicle itself is what secures it. When you promise to repay the car loan, you agree that the lender can take possession of the car through seizure if you default.

Once a vehicle has been taken backthe remaining balance of the loan after they sell the car is unsecured, meaning it can usually be offloaded during a bankruptcy. Most unsecured debts and loans, such as credit card debt, are eligible for forgiveness if they are not paid back at the end of the bankruptcy.

If your car loan has been written off, but you still have the vehicle, you may be able to keep the car, depending on the bankruptcy chapter you file.

Amortized car loan in Chapter 7

If your car loan has been written off but you still have the vehicle, it is considered a secured debt. Since the title is in your name because the car was not sold by your lender, the entire balance of the loan is a secured debt and you record it on your bankruptcy forms.

If you want to keep the vehicle that is still secured, you must reconfirm the car loan (keep paying) or pay off the car loan (pay the full value of the car). However, reconfirmation is usually only possible if you are aware of the loan, and a written-off car loan means you are not current – so repayment is probably your only choice if you want to keep the vehicle.

If the loan is written off and the lender has repossessed the car, the balance of the loan is now no longer guaranteed. Any loan balance that has not been recovered through the sale of the vehicle is now a deficit balance and can typically be discharged along with most other unsecured debts in Chapter 7 bankruptcy.

Amortized car loan in Chapter 13

If you file Chapter 13 bankruptcy, you may be able to continue to pay the loan and keep the car even if the loan has been written off. If the vehicle has been taken back, you may even be able to get the car back. However, to get it back, you will likely need to pay off the loan in full, according to the legal site Nolo.com.

Another option you may have is to prop off the loan and pay only its fair market value. A cramdown involves reducing your loan balance to the value of your vehicle. If your loan has negative equity, meaning you owe more than it’s worth, you may want to stuff the loan and set up a payment plan where you only pay for the value of the car. This can save you a lot of money on the car loan and if you meet the requirements.

Another option is to hand over the vehicle to the lender (voluntary seizure) and use the auction proceeds to reduce the loan amount. And because the loan is no longer covered by the car, it can be paid off along with your other debts at the end of your Chapter 13.

Bankruptcy aftermath

After bankruptcy, you are usually in a much better financial position than when you started. Most unsecured debt is typically forgiven, and your finances are generally in better shape. However, your credit score can be worse with wear and tear.

Your credit reports can reflect bankruptcy for up to seven or ten years, depending on the type you filed. With bankruptcy on your credit reports, it can be difficult to qualify for another auto loan, even if your bankruptcy has been settled and completed. But there are lenders who can help borrowers after bankruptcy, the so-called subprime lenders.

Subprime lenders specialize in helping with tough credit situations, such as written off car loans, past seizures, and bankruptcy. Finding these lenders can be a bit tricky, though, as they usually don’t stand out in the crowd of lenders and dealers – we want to help with that.

Here at Auto Credit Express, our goal is to connect borrowers with dealers who are signed up with bad credit options. To be matched with a dealer near you who can help borrowers with poor credit and unique credit situations, fill out our free application form for car loan. We will immediately start looking for a dealer near you!

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