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Bankruptcy vs Car Repossession Which Is Worse

Bankruptcy vs. Car Repossession: Which Is Worse

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.

Related Article To Read:

Impact on Credit

Both bankruptcy and repossession will negatively impact your credit score, but to varying degrees:

EventCredit ImpactCredit Report
Chapter 7 BankruptcySevere, can drop score 100-200 ptsRemains for 10 years
Chapter 13 BankruptcyLess severe than Ch. 7, but still significantRemains for 7 years
Car RepossessionSignificant, can drop score 50-150 ptsRemains for 7 years
Impact on credit of bankruptcy vs car repo

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

FeeTypical Cost
Court filing fee$338
Attorney fees$500 – $3500
Credit counseling$50 – $100
Total$888 – $3938
Chapter 7 Bankruptcy costs

Chapter 13 Bankruptcy Costs

FeeTypical Cost
Court filing fee$313
Attorney fees$2500 – $6000
Credit counseling$50 – $100
Total$2863 – $6413
Chapter 13 Bankruptcy costs

Car Repossession Costs

FeeTypical Cost
Outstanding loan balanceVaries
Late payment fees$25-35 per late payment
Repossession fee$200-500
Storage fees$25-50 per day
Auction/sale fees$200-1000
Deficiency balanceVaries
Car Repossession Costs

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

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.

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Picture of Steve Momot - Author

Steve Momot - Author

Steve, a seasoned expert in the automotive industry, formerly held a car dealer license in Florida. With extensive experience spanning across car trading and mechanical work, he founded Autohitch. His mission? To guide both buyers and sellers through the intricate maze of car purchasing, ensuring a seamless and informed experience. Outside of the automotive world, Steve has a passion for fishing and capturing the beauty of nature through photography.


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