Legal Question in Civil Litigation in California

The short answer is yes, she can file a lawsuit. Whether she will win depends on whether you provide proof that for many months, you consistently paid $653 per month, as it was an oral agreement. Because you agreed on a fixed amount per month, and the interest rate climbed because of her actions and not yours, you have a compelling argument in court that she must be liable for the difference. At the same time, you might have to make up the payments that were missed while she was in bankruptcy (or while she considered that prospect).

Mr. Cohen is correct. With only a few exceptions, verbal agreements are as binding as written ones, it just is more difficult to prove what the oral agreement was as opposed to being able to show the written agreement. You bought the car with a loan from her and yuou have the car. You certainly owe her the balance on the car; you have a good chance to have her found responsible for the difference in interest rates and any penalties. Why should you get to keep the car if you make only partial payment on it?