Car Loans: Additional Issues To Consider
Even if the trustee doesn’t sell your car to pay your creditors, you still have one more step to take if you have a car loan. If you don’t have a loan, you’re done.
If you’re behind on your vehicle payments, the lender can take back the car, even if an exemption protects your equity. You might be able to save it one of two ways:
- Redeem the car. Pay the market value of the car to the lender in one lump sum.
- Reaffirm the car loan. Sign a new loan that will remain in force after the bankruptcy is over and make up the payments in the new agreement.
Understand, however, that while you have the right to enter a reaffirmation agreement if you’re current on your payments , the lender doesn’t have to agree to “modify” the loan in any way.
So if you’re behind on your car loan before you file for Chapter 7 bankruptcy, and you don’t have the money to redeem it, you’ll be able to keep your car only if your lender is willing to work with you.
To learn more about these options, see Your Car in Chapter 7 Bankruptcy.
What Happens To My Car If I File Bankruptcy
Very few people who declare bankruptcy in Canada lose their vehicle. You need your car to get to work, so losing your vehicle is not an option. All provinces have laws that exempt one car or truck worth up to a certain dollar limit from seizure by the trustee. To find what happens to your car after you file bankruptcy, we look at two key questions:
The first question that you will be asked is what is your car worth? To determine this youll need to have the vehicle appraised. Most trustees will accept an independent value of opinion that is, the opinion of someone who is qualified to sell cars or value cars, that is not related to you or a friend, that is willing to write out a letter indicating what they believe the fair market value of your car is. Fair market value is the amount that someone would pay for your car.
The second question will be is your car financed or do you have clear title to your car? Clear title means that there are no liens or other claims to your car. A lien is the technical term for pledging your car as security for a debt. In other words, is your car financed, leased or has another creditor placed a secured charged against your vehicle.
If you file bankruptcy, there are options that can allow you to keep your vehicle no matter its value. You can also choose to keep, or hand back, a leased or financed vehicle depending on what makes the most sense for you financially.
Debt Consolidating Vs Consumer Proposal
You may be wondering if a debt consolidation loan, home equity loan or second mortgage are a good option to consolidate your debts if you have significant credit card debt, tax debts or other unsecured debts.
An unsecured consolidation loan may be tough to get should your credit rating currently reflects bad or credit that is too much. Even it can be difficult to qualify for a home equity loan or second mortgage and the costs and interest rate can be significant if you have equity in your home.
Our financial obligation professionals will allow you to review the debt restructuring options and compare the advantages and cons of the brand new loan or 2nd home loan with making an official, debt consolidation offer to your creditors through a consumer proposition.
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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
Three Options For Your Car Loan In Bankruptcy
If you still owe money to a finance company or bank for a loan taken out to buy the car, then things get a little more involved. Under the Bankruptcy Code, you have one of three choices when it comes to the car and the loan:
Naturally, this last one should only be done after careful discussion with a lawyer.
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How Does Bankruptcy Affect Credit
Both forms of bankruptcy can severely damage your credit for many years to come, so filing isn’t an action that should be taken lightly.
Chapter 7 bankruptcy stays on credit reports for 10 years, while Chapter 13 bankruptcy sticks around for seven years. This means even nearly a decade after filing, potential creditors, lenders, landlords, utility companies and others legally allowed to view your credit will be able to see the bankruptcy on your report. Having bankruptcy in your history can cause you to be denied for new applications, such as for loans or credit cards. If a lender or creditor does approve you, you may face sky-high interest rates or fees.
During this time, though, you can help rebuild your credit by making wise financial decisions. If you pay all of your bills on time, avoid overspending, and use a secured credit card responsibly, you can slowly nudge your credit score back up.
A Word About The Military Lending Act
Title lenders and other predatory lenders often target military servicemembers. If you’re an active-duty servicemember, the Military Lending Act offers special legal protections for you, your spouse, and certain dependents. The MLA restricts terms for vehicle title loans, payday loans, and other kinds of high-risk financing products. For example, it prevents a lender from:
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Requiring access to your bank account
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Requiring you to pay your title loan by check
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Charging you more than 36% APR
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Requiring you to waive certain legal rights
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Requiring you to create a voluntary military allotment in order to get the loan
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Charging you a prepayment penalty
Importantly, the MLA does not cover credit that is secured by property being purchased, like a loan to buy a home, motor vehicle, or personal property like a home appliance.
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Bankruptcy Exemptions In Newfoundland And Labrador
- Food and fuel required by you and your dependants for 12 months
- Clothing for you and your dependants up to $4,000
- Household furnishings and appliances up to $4,000
- One motor vehicle up to $2,000
- No limit on medical and dental aids for you and your dependants
- Items of sentimental value up to $500
- All pets are exempt from bankruptcy
- Up to $10,000 of equity in your home
- Tools of your trade or business up to $10,000
- Certain income and pension plans
How Does The Treatment Of Non
A consumer proposal is the most common alternative to personal bankruptcy in Canada. In fact, it is the solution most Canadians use to deal with their debts.
Just like in the case of bankruptcy, a consumer proposal offers debt relief and provides legal protection from creditors. A consumer proposal can stop collection calls, a wage garnishment and lawsuits.
The main difference between the two is that you can keep all your assets with a consumer proposal, including non-exempt assets.
A consumer proposal is a legal agreement to settle your debts for less than you owe, in exchange for which you agree to make pre-arranged payments to pay off the settlement amount. While you do not lose assets in a proposal, the value of your non-exempt assets will affect how much you will need to offer your creditors.
Consumer proposals are much simpler than bankruptcies, and the terms are determined upfront. Your payments can be spread out over a period of up to five years, making your monthly payments more affordable than a bankruptcy if you have significant non-exempt assets you wish to keep.
The goal of filing for bankruptcy, or making a proposal to creditors, is to get debt relief when you reach a point where you cant pay off what you owe on your own. Bankruptcy is not punitive, but instead it eliminates almost all your unsecured debts and allows you to start fresh
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Protecting Your Car Equity In Chapter 7
When you file for bankruptcy, you can protect property that you’ll need to work and live by “exempting” it from your bankruptcy case. Each state decides the property its residents can keep and whether its residents can use the:
- the federal exemptions, or
- choose the set that works best for you.
If you can exempt all of the equity in your car, you’ll be able to keep it. In fact, you’ll probably be able to keep it even if there’s a small amount of nonexempt equity because the car won’t be worth selling. In that case, the trustee will “abandon” it.
If substantial nonexempt equity exists, however, here’s what the trustee will do:
- sell the vehicle
- pay you the exemption amount
- reimburse sales costs and fees
- take a percentage as a fee for selling the car, and
- distribute the remaining funds to your creditors.
Some trustees will allow you to pay the trustee for the nonexempt equity and keep the car. Usually, the price you’ll have to pay will be discounted by the amount the trustee saves in sales costs. You’ll have to use funds that aren’t part of the bankruptcy. Most people use post-filing earnings or get a gift or loan from a friend or relative.
Bankruptcy Or Consumer Proposal: Which Is Right For You
Another question many Canadians ask before they declare bankruptcy is whether a consumer proposal is the best option for reducing their debt.
As with bankruptcy, a consumer proposal gives good faith debtors a way of solving their debt problems and hitting the reset button on their financial situation. In fact, 60% of the insolvency filings made to the OSB in 2019 were proposals.
Your trustee will advise you on whether filing a consumer proposal or bankruptcy is best for your situation, and you can read more about the difference between the two on our guide to Bankruptcy vs. Consumer Proposal.
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Making A Reaffirmation Agreement To Keep Your Car
Another way to keep your car when filing for bankruptcy is to reaffirm the debt, which means agreeing to a new payment plan with the lender. About two-thirds of those filing Chapter 7 bankruptcy indicate on Form 108, the statement of intent, that they plan to go with this option.
Reaffirming the debt protects the lender, who wants assurance youll continue to make payments on the vehicle loan. One of the consequences of bankruptcy is that creditors, and the bankruptcy court, want to make sure that youll be able to pay obligations going forward and they are strict about it. Lenders that agree to a reaffirmation plan will send an agreement to your bankruptcy attorney, who must approve the plan. If you are working without an attorney, the reaffirmation plan has to be included with the documents when you file for bankruptcy. the bankruptcy court will hold a reaffirmation hearing to determine if you can afford to make the car payments.
If reaffirmation is approved, you must keep up with the payments in order to keep the car. You cant refile for another Chapter 7 bankruptcy for eight years after discharge of one, so that option is gone as far as keeping the car after bankruptcy if you cant make payments.
In Most Cases You Will Not Lose Your Home Or Car During Your Bankruptcy Case As Long As Your Equity In The Property Is Fully Exempt
Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13.
However, some of your creditors may have a “security interest” in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.
There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan , you can usually keep your property without making any more payments on that debt.
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Are You Behind On Your Car Payments
If you are behind on your car payments and at risk for repossession, filing for bankruptcy will generate an automatic stay, which will stop creditors from repossessing the vehicle. At this point you can discuss with a qualified bankruptcy professional options to keep your car. These options include negotiating with the creditor to get car payments caught up, redeeming the vehicle or treating the vehicle in a Chapter 13 plan at a lower payment and interest rate.
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If You Have Nonexempt Property
Even if you have property that isn’t protected by an exemption, you may be able to keep it. First of all, you will get to keep it if it isn’t the time and money the trustee would spend taking it and selling it. For example, if you own a second car that’s worth $5,000, and you still owe $4,500 on it, the Chapter 7 bankruptcy trustee might decide not to take it. Once the trustee pays the costs of repossessing, storing, and selling the car, what’s left will probably be only enough to cover your car note. Your other creditors won’t get anything out of the deal. Similarly, if you own property that just isn’t worth much , the trustee probably won’t bother to take it.
If your nonexempt property is worth more, you may be able to negotiate with the trustee to keep it, but you’ll have to give something up in exchange. If you have exempt property you don’t need, you might be able to trade that so you can keep your nonexempt property. For example, if you really want to keep your nonexempt darkroom equipment , you might offer to give the trustee an antique armoire worth about the same amount, even though you’d otherwise get to keep it as exempt furniture.
You can also offer to “buy back” your nonexempt property, if you can come up with enough cash to pay about what your creditors would have received if your property were taken and sold. You could borrow the money, use your income to pay, or sell exempt property.
Contacting Richard P Arthur For Bankruptcy Help
Richard P. Arthur, Attorney at Law, can help you file for bankruptcy and figure out how to protect your assets. You can call 937-254-3738 for a consultation. He has nearly three decades of experience advocating for families in Dayton and Trotwood, as well as Montgomery, Greene, Miami, Clark, and Warren counties.
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Filing Bankruptcy When You Dont Own The Car
If you are still making payments on your car loan when you file for bankruptcy, then the equity you have in the car becomes important. Equity is what you still owe on the car subtracted from its current value. For instance, say your cars value is $9,000 and you still owe $4,000, that means you have $5,000 equity if you sold the car, youd make $5,000. The exemption in your state is $6,000. Since your equity is less than the states exemption, you keep the car. If its more, the bankruptcy trustee can sell it, putting the equity toward your unsecured debt and allowing you to buy a $6,000 car.
The longer youve owned the car and the more youve paid, the more likely it will be over the exemption limit. On the other hand, cars are not like fine wine they lose their value fast. The longer youve had it, the less its worth.
