Kentucky Bankruptcy Law and Your Car Loan

Kentucky bankruptcy law provides a framework for individuals struggling with overwhelming debt, including car loans. Understanding how these laws impact your car loan can help you make informed financial decisions.

When filing for bankruptcy in Kentucky, you have two primary options: Chapter 7 and Chapter 13 bankruptcy. Each chapter has different implications for your car loan.

Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, allows individuals to discharge most unsecured debts. However, certain secured debts, such as car loans, may pose a challenge. If you wish to keep your vehicle, you must continue making payments. In Kentucky, if you are current on your car loan and you want to retain the vehicle, you can reaffirm the debt during the bankruptcy process. This means you agree to keep making payments and keep the car, even though the debt could be discharged.

On the other hand, if you fall behind on your payments, the creditor may repossess your car. Under Kentucky law, after you file for bankruptcy, the automatic stay will prevent creditors from taking collection action temporarily, including repossession. However, they may seek relief from the automatic stay, which could lead to repossession if you do not reinstate payments.

Chapter 13 Bankruptcy
Chapter 13 bankruptcy is often more favorable for individuals looking to save their vehicles. This type of bankruptcy involves a repayment plan that typically lasts three to five years. Under Chapter 13, you can propose a plan to catch up on past due payments while keeping your vehicle. This provides a structured way to resolve your car loan arrears while avoiding repossession.

Another advantage of Chapter 13 is that if your car loan was taken out more than 910 days (approximately two and a half years) before you file, you may be able to reduce the amount you owe to the current value of the vehicle. This is known as “cramdown” and can significantly lower your monthly payments.

However, it’s essential to keep in mind that all car loans are considered secured debts and are treated differently in bankruptcy proceedings. You must stay current on your repayment plan and all future loan payments if you wish to retain the vehicle.

Impact on Credit
Regardless of whether you file under Chapter 7 or Chapter 13, bankruptcy will impact your credit score. However, rebuilding your credit is possible after bankruptcy. Making timely payments on your reaffirmed car loan or new car loan under Chapter 13 can help demonstrate financial responsibility.

Conclusion
Understanding Kentucky bankruptcy law and its effects on your car loan is crucial for anyone facing financial difficulties. It’s important to consult with an experienced bankruptcy attorney to navigate these options effectively and create a plan that best suits your situation. By taking proactive steps, you can address your debts while preserving your ability to drive and maintain your vehicle.