When faced with the possibility of losing your vehicle, you may consider bankruptcy rather than allowing your car to be repossessed, but which is really worse when it comes to cost and the impact on your credit?
For most people, repossession will still be the best option because of the two it has less of an impact on credit and will cost you significantly less money in the end.
But, this isn’t necessarily a one sized fits all sort of topic, so below I created a detailed analysis of Chapter 7 bankruptcy, Chapter 13 bankruptcy, and car repossession, comparing their impacts on credit, costs, and other key factors to help you make an informed decision.
Table of Contents
Related Article To Read:
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- Car Repossession Loopholes
- How Soon After Bankruptcy Can I Buy a New Car
Impact on Credit
Both bankruptcy and repossession will negatively impact your credit score, but to varying degrees:
| Event | Credit Impact | Credit Report |
|---|---|---|
| Chapter 7 Bankruptcy | Severe, can drop score 100-200 pts | Remains for 10 years |
| Chapter 13 Bankruptcy | Less severe than Ch. 7, but still significant | Remains for 7 years |
| Car Repossession | Significant, can drop score 50-150 pts | Remains for 7 years |
Chapter 7 bankruptcy has the most severe impact, causing a steeper drop in credit score that remains for a longer period compared to Chapter 13 or repossession.
However, all three options will make obtaining new credit very difficult and expensive for several years afterward.
Costs Involved
The costs associated with bankruptcy versus repossession vary:
Chapter 7 Bankruptcy Costs
| Fee | Typical Cost |
|---|---|
| Court filing fee | $338 |
| Attorney fees | $500 – $3500 |
| Credit counseling | $50 – $100 |
| Total | $888 – $3938 |
Chapter 13 Bankruptcy Costs
| Fee | Typical Cost |
|---|---|
| Court filing fee | $313 |
| Attorney fees | $2500 – $6000 |
| Credit counseling | $50 – $100 |
| Total | $2863 – $6413 |
Car Repossession Costs
| Fee | Typical Cost |
|---|---|
| Outstanding loan balance | Varies |
| Late payment fees | $25-35 per late payment |
| Repossession fee | $200-500 |
| Storage fees | $25-50 per day |
| Auction/sale fees | $200-1000 |
| Deficiency balance | Varies |
Chapter 7 is generally the least expensive bankruptcy option, while Chapter 13 involves a 3-5 year repayment plan that adds to the total cost.
Repossession costs depend heavily on the outstanding loan balance and any deficiency owed after auction.
Other Key Differences
- In Chapter 7, you may lose your vehicle if its equity is not exempt. In Chapter 13, you can keep the car by continuing payments under the repayment plan. Repossession means losing the car entirely.
- Bankruptcy offers a chance to discharge other unsecured debts like credit cards and medical bills, providing a fresh financial start. Repossession only deals with the auto loan.
- Bankruptcy is a matter of public record and sometimes viewed negatively by employers, landlords, etc. Repossession, while still harmful to credit, does not carry the same stigma.
My Conclusion on Which is Worse
The debate on bankruptcy and repossession ultimately depends on your unique financial circumstances and goals.
If your debt is primarily your car loan and you can manage other expenses, repossession may cost less than bankruptcy. However, if you have substantial other debts, bankruptcy – particularly Chapter 13 – offers a chance to protect your vehicle while getting other debts discharged or restructured.
Before making a decision, consult with a bankruptcy attorney who can assess your complete financial situation and recommend the best path forward.
Sources For This Article
- https://www.creditkarma.com/advice/i/how-much-cost-filing-bankruptcy
- https://www.investopedia.com/terms/b/bankruptcy.asp
- https://www.lendingtree.com/credit-repair/how-a-car-repossession-affects-your-credit/
Legal Disclaimer
The information provided in this article is for general informational purposes only and should not be considered legal advice. Always seek the advice of a qualified attorney with any questions you may have regarding your specific situation, as laws and regulations regarding bankruptcy and repossession vary by state and are subject to change. Before making any decisions based on the information provided, consult with a qualified bankruptcy attorney licensed to practice in your state who can assess your unique financial situation and provide personalized advice.
