How Bankruptcy Law Affects Your Car Loan in Georgia

Bankruptcy law can significantly impact your car loan in Georgia, influencing the way in which both the loan and the vehicle are treated during the bankruptcy process. Understanding these effects is crucial for individuals considering bankruptcy as a financial option.

When filing for bankruptcy in Georgia, there are generally two types you can consider: Chapter 7 and Chapter 13. Each chapter has different implications for your car loan.

Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, most unsecured debts are discharged, but secured debts like car loans are handled differently. If you want to keep your car, you must continue making payments on your loan. During this process, you can choose to reaffirm the debt, allowing you to retain the vehicle while agreeing to stick to the original loan terms. However, if you decide not to reaffirm the loan or if you stop making payments, the lender has the right to repossess your vehicle.

It's important to note that Georgia has exemptions that allow you to protect a certain amount of equity in your car. As of October 2023, Georgia's motor vehicle exemption allows individuals to protect up to $5,000 of equity in a vehicle. However, if you have more equity in the vehicle than the exemption allows, you may risk losing it in a bankruptcy proceeding.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy provides a different approach. This type of bankruptcy allows you to create a repayment plan over three to five years, during which you can catch up on missed payments while keeping your car. If you're behind on your car payments, Chapter 13 may be an ideal choice as it can help you prevent repossession and allow you to reorganize your finances.

In Chapter 13, your car loan may be treated as a secured debt, and its repayment can be modified through the bankruptcy court. For instance, if you owe more on the loan than the vehicle is worth, you might be able to reduce the principal amount you owe to its market value, a process commonly referred to as "cramming down." Keep in mind that this option is not available for vehicles purchased within 910 days prior to filing for bankruptcy.

Impact on Credit Score

Filing for bankruptcy in Georgia will also have implications for your credit score, affecting your ability to secure future loans, including car loans. A bankruptcy can remain on your credit report for up to 10 years, which may make it challenging to obtain financing or result in higher interest rates if you do. However, many people find that their credit scores can begin to improve soon after filing due to the discharge of debt.

Conclusion

Understanding how bankruptcy law affects your car loan in Georgia is essential for making informed financial decisions. Whether choosing Chapter 7 or Chapter 13, knowing your rights and options can help you navigate the complex process of bankruptcy while protecting your vehicle. Always consider consulting with a bankruptcy attorney to discuss your situation in detail and to find the best path forward.