You Could Keep Your Car Through The Motor Vehicle Exemption
You need to check whether your state has laws on Motor Vehicle Exemption . State and federal exemptions will be able to protect some or all of the equity that you have on your car.
Depending on where you reside, the amount of equity that can be exempted from your vehicle will vary. Some states, however, will allow you to use the exemption amount set by the federal government to keep your auto.
The federal exemption on motor vehicles is currently set at $4,000. Some states have a lower exempt value, while others are more generous. Texas, for instance, will allow you to exempt the entire value of one vehicle per licensed household member.
The Colorado Vehicle Exemption Can Help You Keep Your Car
In most cases, you will not lose your car during your bankruptcy case as long as your equity in the vehicle is fully exempt. If you have taken out a loan that has been secured by your car , bankruptcy does not make that security interest go away. If you dont make your payments on that loan, the lender may be able to take and sell the car, during or after the bankruptcy case.
If you are not behind on your loan payments, you may be able to keep your car if you agree to keep making payments and sign a reaffirmation agreement if required by the lender. You may even be able to negotiate a lower principal amount, based on what your car is actually worth. If you are behind on your loan payments, you may want to file a Chapter 13 bankruptcy petition. Chapter 13 bankruptcy may allow you to pay what your car is currently worth versus what your loan amount is. Chapter 13 also allows you to catch up on your back payments and bring the loan current.
Reaffirming The Car In Bankruptcy
Most motor vehicle creditors will require an individual to sign a Reaffirmation Agreement on the vehicle to be filed with the court. Signing this document essentially puts you in the same position with your obligation as before you filed. Reaffirming on a motor vehicle is also a useful tool to begin the process of rebuilding your credit. You can also choose to redeem the car by paying the lender the current market value in one payment.
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Unprotected Car Equity In Bankruptcy
It’s not uncommon to have more equity in your car than you can exempt from bankruptcy. That doesn’t necessarily mean that you’ll lose the vehicle, however. Again, your options will depend on the bankruptcy chapter you file.
- Chapter 7 bankruptcy. Suppose that you have $10,000 in equity in your car, but your state’s vehicle exemption is $5,000. Typically, the bankruptcy trustee appointed to administer the case would sell the car, pay off any loan, and distribute the remaining funds to creditors. Keep in mind that if you want to keep the car, most trustees will let you pay for the nonexempt equity at a discount over a few months’ time. Filers often borrow the money from a friend or relative or use post-bankruptcy income to make the payments.
- Chapter 13 bankruptcy. You don’t have to give up property in a Chapter 13 case. Howeverjust as in a Chapter 7 caseyou must pay your creditors an amount equal to the nonexempt vehicle equity. Therefore, if you want to keep a car that has more equity than you can protect, you’ll pay for the nonexempt equity in your three- to five-year repayment plan.
Automobiles And Motor Vehicles
You have several choices for keeping your car a Chapter 7 bankruptcy.
After you have filed the bankruptcy. the first option is to continue making payments on the auto loan. Whether you owe more than the car is worth or less than the car is worth, the car finance company really only cares about getting paid. So as long as you are making payments they will allow you to keep the car. This is called pay-as-you go. The main advantage of pay-as-you-go is that if you have financial trouble after the bankruptcy is over, you can turn the car back to the finance company without any consequences. Since you are not technically required to pay anything on the loan there is no consequence to stopping paying other than giving the car back.
The second option would be to file whats called a reaffirmation agreement. A reaffirmation agreement says even though I do not owe this debt anymore due to filing bankruptcy, I agree to remain liable for the debt owed on the car. This is not always the best solution but it does have some advantages. The biggest advantage is that if you reaffirm a debt it continues to be reported that on your credit. So it drives your credit score up earlier and faster than if you just pay-as-you-go. The main disadvantage to filing a reaffirmation agreement is that if you do have financial trouble after the bankruptcy is over then you are liable on this debt.
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Keeping Your Home In Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, the court will liquidate most of your unsecured debts thats debt like credit card debt and personal loans, that isnt attached to an asset like a house or a car. Once that debt is out of the way, it should make it easier to make your mortgage payments.
If you cant pay your mortgage after bankruptcy, the result will be the same as not paying it before bankruptcy you eventually will lose your home.
If you know you are going to file for bankruptcy and want to keep your house, you can see if your mortgage lender would work with you on modifying your mortgage agreement in a way that would allow you to catch up on your payments. Do this before you file for bankruptcy. Once you file, the court takes over your assets and its out of your hands.
Here are some of the things that make it more likely your house will be protected if you file for Chapter 7 bankruptcy:
- You are up to date on mortgage payments
- All, or most, of your equity is protected with an exemption
- You owe more on the house than its worth
- You demonstrate to the court you can make your mortgage payments on time
- You negotiate with your lender before you file for bankruptcy on a loan modification.
How Do Bankruptcy Exemptions Work
Most of the Chapter 7 bankruptcy exemptions have a limit. This means that anyone fiing bankruptcy can protect certain types of property up to a certain amount.
For example, say your car is worth $3,500, and the exemption for motor vehicles in your area is up to $6,000. In this case, you would be allowed to keep your vehicle.
Say, however, that your vehicle is worth $9,000. In this situation, your trustee can sell your vehicle for $9,000. They would then give you $6,000 of the profits, and divide the remaining $3,000 amongst your creditors.
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Can You Keep Your Car After Filing Bankruptcy
There are several factors that go into whether you’ll be able to keep your vehicle through the bankruptcy process. Since your vehicle is considered an asset, and potentially a valuable one, it’s something creditors may pursue when looking to collect debt. Your vehicle may, however, be counted under an exemption that protects it from repossession. In general, the following is considered to determine if you’ll be able to keep your car:
- The type of bankruptcy you’re filing
- Whether you own, lease or are still financing the vehicle
- The value of the vehicle
- What exemptions apply where you live
Read on to learn more about what you can expect to happen to your vehicle when you file bankruptcy.
Keeping A Car You Own Free And Clear
If you own your car free and clear, the next question you have to answer is âhow much is my car worth?â The answer – the carâs fair market value – determines whether you risk losing the car in a bankruptcy.
How much is your car worth?
If you sold your car today, as is, whatâs the most someone would pay you for it? Thatâs the value that matters. It doesnât matter how much the car cost when you bought itâ¦ thatâs old news. If youâve had your car for a few years, itâs no longer in the same condition as when you bought it. How much it cost then doesnât tell you how much itâs worth today.
It also doesnât matter how much you ended up paying for it by the time the car loan was finally paid off. That amount includes the interest you paid and depending on the interest rate on your auto loan, that can be quite a bit more than the car was ever worth.
Find out how much you can protect with an exemption
Filing a bankruptcy case is meant to give you a fresh start. Bankruptcy exemptions exist to make sure everyone filing a bankruptcy case can keep their most basic possessions. Depending on the state youâre filing in, and how long youâve been there, you may be able to choose between the federal bankruptcy exemptions and the exemptions granted by your state law.
Getting additional protection by claiming a wildcard exemption
What if my carâs fair market value is greater than the exemption amount?
Chapter 13 bankruptcy can help, too!
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Keeping A Vehicle That You Own Outright When You File Bankruptcy
In Ontario, you can keep any motor vehicle worth up to $7,117 when you declare bankruptcy. You can research other provincial exemption amounts across Canada here.
Most older vehicles qualify for this exemption. Your trustee will look up what is known as the black book value of your car or truck to determine whether your vehicle will be considered property in your bankruptcy or will fall under the provincial exemption limit.
If you own a car outright and the fair market value is more than the exemption limit, you can propose to buy out the realizable portion from your trustee over the period of your bankruptcy.
If for example, you have a car worth $8,517, you would have to pay your trustee $1,400. You could do this by making additional payments of $156 during a typical 9-month bankruptcy. If that monthly payment is too much, talk to our trustees about a consumer proposal.
You can keep one motor vehicle under these exemption rules. If you own more than one vehicle and would like to keep both, a consumer proposal may be a better option.
If Youre Behind On Your Mortgage Payments
With Chapter 7, if you are behind on your mortgage payments and cant catch up, you can surrender your house. If you want to catch up on payments, there is no provision under Chapter 7 to do that, so, as mentioned before, it should be done before filing for bankruptcy.
One of the biggest benefits of Chapter 13 is that it makes it easier to keep your house, including catching up on payments. Payment plans allow a mortgage modification with a bank that can spread missed payments over the life of the plan, three to five years, and also require current payments be made.
In either case, if the bank is going to foreclose on your house and you know you wont be able to stop it, and you plan to file for bankruptcy, file for bankruptcy before the foreclosure. If the bank sells your house after a foreclosure but doesnt make back what you owe them on it, there is a deficiency judgment, which means you owe the bank the difference. If the foreclosure happens as a result of the bankruptcy, there is no deficiency judgment.
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What Happens To My Car Once I File For Bankruptcy
You may or may not be able to keep your car when you file for bankruptcy. The type of bankruptcy you choose to pursue, how much equity you have in your vehicle and whether you own the car outright or are financing or leasing it will determine what happens to your car in bankruptcy. Other factors like the value of your car and exemptions in your state will determine what happens to your car once you file for bankruptcy.
How Your Equity Affects You In Bankruptcy
The market value of your house, minus what you owe on it, is home equity. Lets say the market value of your home is $250,000. You owe $195,000 to the bank on it. That means you have $55,000 in equity. In other words, if you sold your house tomorrow, after you paid what you owe, youd clear $55,000. The debt on your house not only includes the mortgage, but any home equity loans or lines of credit you may have, as well as liens.
The homestead exemption protects equity, up to a point. With the example above, if your state had a $50,000 exemption, then the bankruptcy court would only consider what came after that as equity $5,000. This is a simplification for explanation purposes fees for the bank and trustee are also subtracted, so it would, in reality, be less. If you were using the federal exemption, the exemption would be $29,850 in equity, minus the fees. If you live in a state that only allows you to use the state exemption, and the state exemption is lower, say $10,000, the court would consider $45,000 in equity, minus the fees.
As youll see shortly, while Chapter 13 is designed to help you keep your house, its difficult to do. The courts recommend people filing Chapter 13 bankruptcy hire an attorney or financial counselor who is an expert in bankruptcy to help you navigate the ins and outs.
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What If You Owe More Than Fair Market Value Or You Cant Afford The Payments
If you have a significant shortfall on your car, it may be prudent to simply surrender the car to the lender when you go bankrupt so that you are not overpaying for the vehicle. If you think your car loan or lease is too expensive, and you cant afford to keep up with your payments, you have the option of handing back the vehicle to the lender.
In either case, you must return the vehicle to lender before you file. If you do surrender the car to the secured lender, any resulting shortfall after they sell the vehicle is eliminated as part of your bankruptcy.
In rare circumstances, people sometimes offer their vehicle as collateral for a larger consolidation loan. This is slightly more complicated however a trustee can walk you through options that can help you keep the vehicle if that makes sense.
Keeping A Car Thats Not Paid Off
First, if youâre close to having it paid off, there is a good chance you have at least a little bit of equity in the car. In this context, equity is calculated by subtracting the current loan balance from the carâs value. As long as the equity is less than the exemption amount , your bankruptcy trustee canât touch your car.
About your car loan
Chapter 7 bankruptcy is not a way to get a free car. If youâre still making payments on a car loan, you havenât paid for your car yet and he only way to keep the car is to pay for it.
Redeem the car by paying only how much itâs actually worth
One way to do this is through a redemption, where you pay for the car’s current value in a single payment, no matter how much you owe. If that sounds like an option for you, here’s where you can learn more about how to redeem your car.
Is paying a lump sum to redeem your car not possible? You have other options!
If you’re like most, you probably don’t have access to that kind of money right after your bankruptcy filing. That is where reaffirmation agreements come in.
Reaffirmation Agreement Basics
A reaffirmation agreement allows a bankruptcy filer to keep their car by preventing the car loan from being discharged. They exist, in large part, to protect banks and credit unions after a Chapter 7 bankruptcy. Here are some details about the process of reaffirming a car loan.
If you were facing repossession, a reaffirmation may not be the way to go
Keep the car, keep the debt.
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How To Avoid Losing My Car
While nothing can be guaranteed in a Chapter 7 bankruptcy filing, the best way to ensure you have done everything possible to keep your car is to consult with an experienced lawyer. The lawyers at Cravens & Noll Bankruptcy Law Group have years of experience in protecting you and your property.
Are you concerned about losing your car while filing? Contact us now for your initial bankruptcy consultation.
Ch. 7 Bankruptcy Lawyer Info
If You Have A Loan Secured By The Property Will The Bank Agree To A Reaffirmation Agreement
If you own the property in question free and clear, then Step 2 should be the end of your analysis. Usually however, property such as residences and vehicles are secured by a loan. If you want to retain the property in question, you will have to reaffirm the loan. This is accomplished by executing a contract with the bank that holds the loan, called a reaffirmation agreement, whereby you and the bank both agree that the loan will not be wiped away in bankruptcy with the rest of your debt. After your bankruptcy, you will still have the debt represented by the loan and still be required to make payments as you were prior to the bankruptcy.
If you do not execute a reaffirmation agreement and file it with the court, you will no longer be responsible for the loan, but the bank will have the right to collect the property secured by the loan .Banks are almost universally willing to execute reaffirmation agreements.
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