Should you file bankruptcy or let the bank repossess your car?

The question of whether to file for bankruptcy or let the bank repossess a car has many answers, all of which require serious consideration. One reader of a debt advisory column asked which of the two options would be less damaging to her credit score. But there are other options she may not have considered. The scenario, which could apply to any Mississippian, is that there are two car loans of which the reader states she is only having a problem making payments on one of the loans.

Car loans are generally secured lines of credit meaning if the loan payments are not paid on time or payments are missed, the lender can repossess the vehicle. Whether or not the person was to file for bankruptcy or let the bank repossess the vehicle, she would still lose that second vehicle. If it were to be repossessed, she would owe the bank the difference between what it sold the vehicle for and what she still owed on the loan. She could end up owing money on a car she no longer owns.

In a bankruptcy she could turn the vehicle over to the bank and, depending the type of bankruptcy she chose to file, have the remaining balance discharged. But there is a third option also, which is to sell the vehicle on her own, perhaps at a loss, however the difference in what she owed and what the vehicle sold for may not be as large as if the bank repossessed and sold the car. She would maintain at least some of the control over the process.

There are numerous variables in every individual situation that should be considered before letting a lender take action, whether through a repossession, foreclosure, garnishment or judgment. The sooner a person acts on a debt issue the more options he or she will have in fixing the problem, whether through bankruptcy, debt consolidation or debt reduction by negotiating with a lender.

A personal bankruptcy attorney is your best place to start to learn what the laws are in your particular state and what your rights and options are under your individual circumstances. A bankruptcy attorney can also walk you through the pros and cons of the various strategies so you can make a well-informed decision on how to handle your debt.

Source: The Record Searchlight, "Debt Adviser: Have car repossessed or file bankruptcy?," Steve Bucci, July 29, 2012

Heidi S. Milam, Attorney at Law, P.L.L.C., is both a family law and bankruptcy practice located in Southaven, Mississippi.

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