Can You Get Rid of a Personal Loan Secured Against a Vehicle in Bankruptcy?
If you’ve taken out a personal loan secured by your vehicle—especially from a lender like OneMain Financial, Mariner Finance, or another subprime lender—you may feel stuck. These lenders often require you to use your car as collateral for a high-interest loan, even if the loan wasn’t used to buy the vehicle.
The good news? Bankruptcy can offer powerful tools to reduce or eliminate these types of debts—and in some cases, you can even keep your car while paying far less than what you owe.
What Is a Secured Personal Loan?
A secured loan is backed by collateral—something the lender can repossess if you default. The most common secured loans are a car loan or a mortgage. With a traditional auto loan, the loan is used to buy a car, and the car itself is the collateral.
But with lenders like OneMain, you may take out a personal loan for any purpose (debt consolidation, medical bills, home repairs), and the lender secures the loan with your vehicle, often without the borrower fully realizing what that means.
Key Difference: You’re not buying a car—but your existing car can still be repossessed if you stop making payments.
How Bankruptcy Treats Secured Debt
In bankruptcy, debts are generally split into two categories:
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Unsecured debt (e.g., credit cards, medical bills): can usually be wiped out in a Chapter 7 or partially paid in Chapter 13.
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Secured debt (e.g., loans tied to a car or house): must be dealt with by either:
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Continuing payments (“retain and pay”),
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Redeeming the property (paying current value in a lump sum), or
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Surrendering the collateral.
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If you have a personal loan secured by your car, it’s treated like a car loan in bankruptcy—even though you didn’t use the loan to buy a car.
Chapter 13 Bankruptcy: Using a Cramdown
If your car is worth less than what you owe on the secured loan, you may qualify for a cramdown in Chapter 13.
What Is a Cramdown?
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You keep the car.
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You only repay the car’s current market value.
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The rest of the loan becomes unsecured and may be discharged.
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You may also lower the interest rate—often to around 7 to 8% (plus trustee fees).
Example:
Client Case Study: James borrowed $11,000 from OneMain to pay off credit card debt. They placed a lien on his 2013 Toyota Corolla, which is only worth $4,000. James still owed $9,000 at 28% interest.
In Chapter 13, we:
Crammed down the secured portion to $4,000.
Discharged the remaining $5,000 as unsecured debt.
Reduced the interest rate to 7.5%.
Result: James kept his car, cut his total repayment in half, and saved over $6,000.
The 910-Day Rule
To qualify for a cramdown on a vehicle loan, any purchase money loan loan must be at least 910 days old (about 2.5 years). If the loan is newer, you must pay the full secured balance to keep the car. However, if you used the car as collateral for a personal loan or refinanced the loan you had, you may have different rules that apply.
Chapter 7 Bankruptcy: Redeeming the Vehicle
In Chapter 7, you can’t stretch payments over time like in Chapter 13—but you can redeem the vehicle.
What Is Redemption?
Redemption means paying the car’s fair market value in a lump sum, even if you owe more.
If your car is worth $3,000 and you owe $8,000, you can keep the car by paying $3,000—and the rest of the loan is wiped out.
This is a great option if:
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You can gather the lump sum (or qualify for redemption financing).
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The car is essential and you owe far more than it’s worth.
Redemption Financing Options
Often these loans are expensive, so it doesn’t always make sense. Sometimes it is easier to buy the same car and get finance that way. However, companies like 722 Redemption Funding offer financing for this exact purpose. You can use their loan to redeem the car, then repay them at a more reasonable rate—often much better than subprime lenders like OneMain.
Can You Negotiate a Better Deal in Chapter 7?
In some cases, lenders like OneMain Financial may be willing to negotiate lower payments or a reduced interest rate during a Chapter 7 bankruptcy—especially if you want to keep the vehicle but don’t reaffirm the loan. While not guaranteed, some lenders prefer to receive something rather than risk repossessing a depreciating vehicle. They may offer informal “retain and pay” options at more favorable terms or reduce the balance voluntarily. However, these offers are often discretionary and not binding under bankruptcy law, so it’s important to review any agreement carefully and consult with your attorney before accepting.
What If You Surrender the Vehicle?
You can always surrender the car in either Chapter 7 or Chapter 13.
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If you give up the car, the lender takes it back.
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You owe nothing else in Chapter 7.
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In Chapter 13, you may repay a small percentage of the leftover balance—but often pennies on the dollar or nothing at all.
If the vehicle isn’t worth keeping—or if the loan balance is outrageously high—surrendering may be your best move.
Lenders Like OneMain: Why These Loans Are So Problematic
Subprime lenders often structure these loans to keep borrowers trapped in a cycle of high interest and hidden fees.
Typical loan terms include:
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Interest rates of 20%–36%
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Long repayment terms (up to 60 months)
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Add-on charges (credit insurance, service fees)
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Collateral requirements (usually your car—even for a personal loan)
Many borrowers don’t realize their vehicle title has a lien until it’s too late. And unlike traditional car lenders, companies like OneMain rarely work with you if you fall behind.
How to Tell If Your Loan Is Secured by Your Car
To check:
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Look at your loan agreement: Does it mention collateral or a lien on a vehicle?
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Check your vehicle title through your DMV. In Virginia, you can request a title record online or by mail to see if a lienholder is listed.
Cross-Collateralization Warning
If your loan is through a credit union, they may have a cross-collateralization clause, meaning:
Your credit card or personal loan may be tied to your vehicle—even if you didn’t use the car to secure it directly.
This can complicate bankruptcy, so it’s crucial to have an attorney review your loan documents carefully.
Bonus: The Automatic Stay Stops Repossession
If you’re behind on your loan or facing repossession, bankruptcy triggers the automatic stay—a powerful legal tool that stops all collection efforts, including:
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Repossession
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Lawsuits
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Harassing phone calls
This protection goes into effect immediately when you file.
FAQs
Can I get rid of a secured personal loan in bankruptcy?
Yes—but it depends on how you handle the vehicle. You can redeem it, cram it down, or surrender it to eliminate the debt.
Can bankruptcy remove the lien from my title?
Yes—once the secured portion is repaid (through cramdown or redemption), the lien is removed.
Do I need to reaffirm the loan?
Usually not. In most cases, we recommend against reaffirmation—especially with high-interest lenders—because it keeps you liable even after bankruptcy.
Can I refinance the loan instead of filing bankruptcy?
Possibly, but many subprime lenders don’t allow refinancing. And most banks won’t refinance a high-interest secured personal loan with poor credit. Bankruptcy may still offer better results.
Final Thoughts: You Have Options to Deal with your Personal Loan Secured Against a Vehicle
If you’re dealing with a personal loan secured by your car, don’t assume you’re stuck. Bankruptcy offers multiple solutions that can:
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Eliminate your debt
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Reduce what you owe
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Lower your interest rate
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Help you keep your vehicle or walk away cleanly
🚗 We Help Clients Tackle Vehicle-Backed Loans Every Day
At Ashley F. Morgan Law, PC, we help Virginia residents review their loan documents, evaluate their options, and protect their vehicles. Whether you’re fighting a OneMain loan, considering Chapter 7 or 13, or just want clarity—we’re here to help.