Michigan Bankruptcy Rules for Car Loans and Leases

Michigan Bankruptcy Rules for Car Loans and Leases

When individuals in Michigan face financial difficulties, understanding bankruptcy rules, especially concerning car loans and leases, becomes crucial. Navigating this landscape effectively can significantly affect your financial future.

Understanding Bankruptcy Types

In Michigan, two primary types of bankruptcy are commonly filed by individuals: Chapter 7 and Chapter 13. Each type has different implications for car loans and leases.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy allows individuals to discharge most unsecured debts, which can provide immediate relief. However, secured debts, such as car loans and leases, require special attention.

If you are behind on your car loan payments but want to retain your vehicle, it’s important to note that:

  • The lender may offer a reaffirmation agreement, allowing you to keep the car while continuing to pay the loan.
  • If you choose not to reaffirm, you may surrender the vehicle, and any remaining balance after the vehicle’s sale might be discharged in bankruptcy.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is designed for individuals who want to retain their assets while restructuring their debts. If you own a vehicle or are leasing one, here’s what you need to know:

  • You can catch up on missed payments over the three to five-year repayment plan.
  • If your vehicle is worth less than what you owe (negative equity), you may be able to reduce your loan balance to the car's current market value.
  • If the vehicle was purchased more than 910 days before filing, you might also be able to treat it as a secured debt.

Options for Vehicle Leases

If you are leasing a vehicle in Michigan and file for bankruptcy, your options might differ going forward:

  • You can assume the lease and continue making payments.
  • If you decide to reject the lease, you may have to return the vehicle, and any charges for excess mileage or damage can be included in the bankruptcy proceedings.

Impact on Credit Score

Filing for bankruptcy will have an impact on your credit score. While it can offer a fresh start, it may take time to rehabilitate your creditworthiness after discharging debts like car loans or leases. Keeping up with post-bankruptcy payments is essential to rebuilding your credit.

Consulting a Bankruptcy Attorney

Given the complexities of bankruptcy law in Michigan, consulting with a specialized bankruptcy attorney can provide personalized guidance. An attorney can help you understand which option is best suited to your financial situation and help navigate the reaffirmation agreements or restructuring plans that suit your needs.

Conclusion

Understanding Michigan bankruptcy rules concerning car loans and leases is essential for anyone considering bankruptcy. By knowing your options, you can make informed decisions that protect your assets and set you on the path toward financial recovery.