Under the current bankruptcy code, if your gross income 6 months prior to filing bankruptcy is above the median income for a household of your size, within your state, then you have to go through a “means test” to see if you can file a Chapter 7 Bankruptcy. Secured items are used to help you successfully get through the means test. That is, the more secured items you owe money on, that you wish to keep, the better. I know this doesn't make sense, but that's the way it generally works. And for cars, if you owe money on a couple of vehicles, this can actually give you additional deductions that will help you in completing the means test with the result you are looking for. If you don't pass the means test, you may be looking at having to do a Chapter 13, or even a Chapter 11 bankruptcy if you have significant debt.
Upon filing a Chapter 7 Bankruptcy, you are presented with 3 official options, and one unofficial or rogue option. The options are to surrender, reaffirm, redeem, or ride through, with only the first three being addressed by the bankruptcy code. The last is just commonplace in some areas, among certain creditors.
- The vehicle simply is not worth what is owed;
- The payments are too high;
- Too many repairs need to be done to the vehicle, and can't afford the repairs; and
- To save money on insurance, registration fees, maintenance, and reduce liability.