Reaffirming The Car Loan In Chapter 7 Bankruptcy
If you desire to continue making payments on your car until its paid off, you can reaffirm the loan. This reaffirmation agreement creates a new contract with your creditor that follows the terms of the original loan.
This can help you retain your car, but the new loan will not qualify for erasure when your bankruptcy moves to the discharge phase. Youll be on the hook for those payments even if you reach a point that you cant afford them. You wont be able to seek relief from the debt until you are eligible for a new Chapter 7 bankruptcy filing in eight years.
Can I Keep My House If I File Chapter 7 Bankruptcy
If you file for Chapter 7 bankruptcythe kind that gets rid of debt most quicklyyou can keep your house under two conditions: Youre current with your mortgage payments when you file , and the laws in your state allow you to protect all of the equity you have in the property. By giving you relief from other kinds of debts, like credit card or medical bills, bankruptcy can free up money to help you keep up with your mortgage. Most of our readers had this experience: 68% of those who went through Chapter 7 bankruptcy were able to keep their home.
If youve already fallen behind on your mortgage payments when you file for Chapter 7 bankruptcy, youre likely to lose your house. Filing for bankruptcy lets you stay in your home another month or two, but ultimately, the bank will foreclose on the property unless you can catch up on your payments quickly. But if the foreclosure sale price is less than what you owe on the mortgage, your remaining mortgage debt can be discharged in bankruptcy. Our readers who lost their houses reported an average discharge of $130,000 in mortgage debt after filing Chapter 7.
Unprotected Car Equity In Bankruptcy
Its not uncommon to have more equity in your car than you can exempt from bankruptcy. That doesnt necessarily mean that youll 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 states 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 dont 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, youll pay for the nonexempt equity in your three- to five-year repayment plan.
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Surrendering The Car To The Lender
If you still owe a lot on your vehicle at high interest rates or if it was slated to be repossessed, you could let your car go back to the lender.
Car payments may have contributed to your need for bankruptcy in the first place. In Chapter 7 bankruptcy qualifying debt gets erased and your car payments can be included in your written discharge of debts if you surrender it.
Keeping Your Car In Bankruptcy Starts With Calculating Equity
Everyone who owns a car and files for bankruptcy will need to calculate their vehicle’s equity. Here’s how to calculate vehicle equity for bankruptcy:
All the equity you can protect is known as “exempt equity.” Any portion not covered by an exemption is “nonexempt equity.”
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How To File Bankruptcy Without Losing A Car
It is possible to file bankruptcy and keep your car. There are two types of bankruptcy. Chapter 7 bankruptcy is the wipe the slate clean method, where your assets are liquidated and your creditors repaid to the greatest extent possible. After that, your remaining eligible debts are discharged. Chapter 13 bankruptcy is the reorganization method, where your eligible debts are folded into a three- or five-year repayment plan, after which balances are zeroed out.
If your car is in danger of being repossessed, filing Chapter 13 will stop repossession in its tracks. Under Chapter 13, you can include the back payments and remaining loan in your repayment plan, and keep your car in the process. If youre underwater in your loan meaning that you owe more than the car is worth you may be able to repay what your vehicle is worth rather than what you owe.
What Are Chapter 7 Bankruptcy Exemptions
The purpose of bankruptcy is to help people get back on their feet and regain control of their financial situation. In order to help with this process, the government created a set of exemptions to help individuals maintain their quality of life, while still resolving their issues with creditors.
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Cars And Personal Bankruptcy
One of the popular myths about personal bankruptcy is that you lose everything you own. That is not true. When filing for bankruptcy, you can expect a licensed insolvency trustee to collect some of your assets and sell them in an effort to repay creditors what theyre owed. One of the assets that a LIT could sell during the bankruptcy process is your vehicle.
A Bankruptcy Attorney Can Guide You In The Right Direction
In all likelihood, your car is at the top of your most prized assets list. After all, it gives you the freedom to run errands, go to work, social events, and go about your daily routine. For this reason, you should know the ramifications of Chapter 7 or Chapter 13 bankruptcy on your car before you make a decision.
If you think that Chapter 7 or Chapter 13 is the best option for you, call Acker Warren, P.C., to get started. Your initial consultation is always free.
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File A Consumer Proposal To Keep Your Car And Other Assets
A consumer proposal is not a bankruptcy. In a proposal you make a settlement offer to repay a portion of your debts. Any offer you make is affected by assets you own that are not exempt in a bankruptcy. However, in a consumer proposal, you keep all your assets, including your car and your home.
A proposal may make more sense if you:
- Own multiple vehicles
- Own a car or truck worth more than the allowable limit
- Can afford to make a settlement offer to your creditors.
If you are struggling with debt, know that you dont lose everything when you claim bankruptcy. Book a free, no-obligation consultation with one of our Ontario Licensed Insolvency Trustees to explore your options.
What Happens If My Vehicle Is Worth More Than The Limit
What can be done if your vehicle is too valuable to fit within the exemption, but you still wish to keep it if possible?
If the vehicle is above the limit , your Trustee may be able to propose a solution in which you pay the overage over time, during your bankruptcy.
It is important to have this discussion with your Trustee before you file, in case it would be advantageous to switch to a car of less value before your bankruptcy.
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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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How Much Do You Owe On Your Car
One of the main qualifiers that decide whether or not you can keep your car is the amount you owe on it. Typically, when courts are deciding what property can be sold to creditors, there is a specific process they follow.
The equity in your car is simply determined by the value of the car less the car loan. If the amount that you owe is not enough to cover the equity value of your car, then creditors have the potential to repossess and sell it. Simply put, the value of the car cannot exceed the amount you owe when you file.
If all of the equity value of your car is protected through the motor vehicle exemptions of Virginia, then you can keep your vehicle. This means that your cars market value is exempt to creditors.
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If You Have A Car Loan When Filing Chapter 7 Bankruptcy You Must Do This
Make sure your car payment is current before filing for Chapter 7. If you don’t have a car loan, you can skip this step. But if you have a car loan, the following information is crucial.
If you’re behind on your vehicle payments, the lender can take back the car, even if you’re in bankruptcy and an exemption protects your equity. Why? Because the car secures the loan.
If you don’t pay as agreed, the lender can use the lien rights to recover the vehicle by doing the following:
- filing a motion asking the court to lift the automatic stay so the lender can pursue repossession, or
- repossessing the car after the court issues the bankruptcy discharge and closes the case.
If you’re behind on payments, you might have another optionredeeming the car. But it can be costly.
You redeem a vehicle by paying the lender the car’s market value in one lump sum payment, so if you owe more than the car is worth, this can be a good way to go. Many people ask friends or family for help or use a lender specializing in bankruptcy redemptions.
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.
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Will I Lose My Car By Filing Chapter 7
If you own your vehicle or are current on your payments, you may be afraid of losing your car in a Chapter 7 bankruptcy proceeding. However, theres a good chance you cankeep your car. The federal government has a list of bankruptcy exemptions, as does each state. Some states mandate that their exemption list be used, while others give consumers the option of using either the state list or the federal list. In California, for example, you can keep up to $5,850 of equity in your car.
This means that, if you own your car and its value is $5,850 or less, then youll be able to keep your car. If your own your car and its worth more than that, then the bankruptcy trustee can sell your vehicle, give you $5,850, and give the remainder to your creditors.
If you have a loan on your vehicle, then you need to determine how much equity you have. Your equity is the amount you could sell it for, less the amount you still owe. If your equity is within the exemption, then the trustee cant sell it.
Chapter 13 Bankruptcy And Your Car
With Chapter 13 bankruptcy, you will work with your creditors on a repayment plan. And so, if you are paying back a car loan, you will likely be able to keep your car. If you break this agreement, your lender will have the right to the vehicle.
And so, whether you are filing for Chapter 7 or Chapter 13, the best way to keep your car in bankruptcy is to work out a repayment plan with your lender.
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Other Types Of Bankruptcy Filings
Chapter 7 is not the only option for filing personal bankruptcy. Working with an attorney on our team can help you understand the differences between Chapters and determine which best addresses your needs, such as:
- Chapter 13 bankruptcy
- Chapter 11 reorganization bankruptcy
- Chapter 12 bankruptcy for family farmers
Working with our firm to prepare and petition for bankruptcy can greatly reduce your stress since we can offer advice to make the process go smoother and provide guidance. We can also address your questions and ensure you take the right steps to protect your vehicle and other assets you hope to keep.
What Happens To A Leased Or Financed Car In Bankruptcy
Bankruptcy in Canada deals with unsecured debts. If your car is financed, through a lease or car loan, then that debt is considered a secured debt.
If you lease or finance a vehicle and file for bankruptcy, you can keep your vehicle as long as you are, and remain, current on your car loan or lease payments.
Your car lender can, however, repossess your vehicle if you fall behind on your payments, and bankruptcy wont stop that.
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You Have Other Options When You Have Car Loans
If you have an existing car loan, there are different options you can look into if you decide to keep or let go of your car after your bankruptcy filing.
1. Surrender the Car
If you cannot afford to pay your car loan, you can give back your car, which will wipe out your liability. The lender may wait for your bankruptcy filing before repossessing the car. However, they may also file a motion to the court to lift the automatic stay and get your car as soon as possible.
2. Reaffirm Your Car Loan
If you have a car loan and your equity is lower than your states Motor Vehicle Exemption, you can reaffirm your car loan. You will enter in an agreement with your creditor that you will continue paying your car loan. But you will also have to prove to the court that you can do so.
3. Sell Your Car
If your equity is much higher than what is exempted, the trustee may decide to sell your car. The proceeds will be used to pay your debts and youll get the $4,000 exempted amount.
4. Pay for the Remaining Amount
If the remaining amount after the exemption is not that high, you can pay for the remaining amount and keep your car.
5. Redeem the Car
When you owe more than what your car is worth in the market, you can redeem the car so that you can keep it. Youll have to pay the lender the lump sum of what the cars current value is.
Learn more about property in bankruptcy.