How Will A Bankruptcy Affect Your Assets During A Divorce
Assets impacted by the legal proceedings will differ based on which action began first. It results in either the bankruptcy or divorce superseding the other, determining what happens to the assets
Before You Finalize The Divorce
Filing for bankruptcy before your divorce or separation is final leaves all assets up for grabs. Your assets are termed as a part of the bankruptcy estate. This means you must release them to the care of the Trustee. Some assets have exemption rules surrounding them, with most designed to enable the bankrupt individual to continue working. Examples include transportation, essential for employment, and other tools critical to life and livelihood.
After You Finalize The Divorce
If you finalize your divorce or separation prior to filing for bankruptcy, any assets transferred to your ex-spouse are exempt from bankruptcy. The regulations surrounding bankruptcy use phrasing that dictates the asset transfer was done in good faith . Provided all the paperwork is in order and the divorce was completed prudently , the assets are not at risk of liquidation.
Be sure to explore all your options check out the difference between debt consolidation and bankruptcy.
How To Calculate Your Bankruptcy Surplus Income Payments
The Bankruptcy and Insolvency Act dictates how surplus income thresholds are calculated. A bankrupts dependents, monthly income, and deductible expenses are all accounted for in deciding whether or not the bankruptcy pays surplus income, and for how long.
The amount of surplus income a bankrupt must pay depends on the following:
- Net income, which includes the income of everyone in the bankruptcys household
- Deductions, which include most tax deductions like child care payments, fines, employment expenses, and medical bills
- Threshold, which sets the limit one can make before having to pay surplus income and
- Payment, which is prorated to each person in a household based on their incomes portion of the total income.
Heres the formula for calculating monthly surplus income payments:
Net Income Threshold = Surplus Income
Surplus Income X 50% = Surplus Income Payment
Arjun lives with his only daughter, and his monthly income is $3,000 per month.
He has: $3,000 $2,799 = $201 of surplus income, therefore he will pay: $201 X 50% = $100.50 each month.
So, if Arjun declares bankruptcy, he must pay $100.50 in surplus income payments each month throughout his bankruptcy. That number could decrease or increase depending on whether or not his financial situation changes.
Limit The Debt To The Cars Value
You may be able to strip the loan down from the contractual balance to the value of the car in Chapter 13. Thats often called cramdown.
Cramdown is powerful since for the early years of most car loans, the debt is greater than the value of the car.
If the loan is the one you used to buy the car, you cant cram down the loan for the first 910 days from the loan.
If the loan is a refinance, you can cram it down any time. Or if the vehicle is used in your business, you can cram down any time. Or if it was bought for someone else to drive.
In Chapter 7, your options for keeping the car are fewer. You can reaffirm the debt, agreeing to pay as originally agreed. That does little to make the car more affordable. It may work if youve shed other debts in the Chapter 7 that frees up money to make the car payment.
Or, you have a choice to redeem the car-regardless of the age of the loan. Redemption means that you pay the lender the value of the car as of the bankruptcy filing in a single payment. If you can raise the money, its often a great money saver.
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Car Loan After Chapter 7 Discharge Option #: Keeping Your Car
You also have the option of keeping your car after Chapter 7 bankruptcy discharge. Chapter 7 bankruptcy law provides exemptions for certain types of property, which allows you to keep them. It also gives you the right to redeem or reaffirm your car loan.
Since some vehicle financers insist that the debtor sign a reaffirmation agreement if they want to keep their car, some debtors may be forced to reaffirm their car loan debt, if they want to keep their vehicle after bankruptcy. A reaffirmation agreement basically states that a debtor agrees to pay a debt after bankruptcy. Failure to pay the debt after bankruptcy when a debtor has signed a reaffirmation agreement could result in creditor collections actions and lawsuits.
In many states, including Texas, you can protect the equity you have in your car. The Texas motor vehicle exemption allows anyone with a drivers license to protect one motor vehicle per licensed household member through Chapter 7 discharge.
If you live in a state that has a less generous motor vehicle exemption than Texas, you still have little reason to worry. Even if you owe what the car is worth or more than the vehicle is worth , chances are that your car will not be taken from you. Creditors want to liquidate assets that will sell for what you owe them. Most dont want to go through the effort of seizing and selling your car since there is little to nothing to gain from it.
You May Be Able To Cram Down Your Car Loan In Chapter 13
If you satisfy certain conditions, you can reduce the principal balance of your car loan to the car’s fair market value in Chapter 13 bankruptcy. This is referred to as a car loan cramdown. A car loan cramdown may also allow you to reduce the interest rate on your loan as well.
When you cram down your car loan, you pay the lender an amount equal to what your car is worth through your plan. The remaining loan balance is treated as unsecured and wiped out when you complete your plan and obtain a discharge.
Example. Jason’s car is worth $7,000 but his loan balance is $10,000. If he qualifies for a cramdown, he may be able to pay the lender $7,000 through his Chapter 13 plan and own the car free and clear after bankruptcy.
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How Long After Filing Bankruptcy Can You Buy A Car
While the effects of bankruptcy hang around for 7 to 10 years on your credit report, thats not how long you must wait to borrow money. The impact of the penalty decreases each year, and its even possible to get a car loan within six months of your discharge.
But that might not be the wisest course of action. The longer you can go without buying a vehicle, the more time you have to improve your credit score, which increases the likelihood of getting a loan at an affordable interest rate. One option: Help yourself out by getting a free copy of your credit report and checking it closely for errors so they can be removed.
If you need a car now, do you have enough cash to buy an inexpensive one to get you through the first 6 to 12 months? It may not be something youll be proud to be seen in, but it will give you time to improve your credit score and save for a down payment, both of which will help you get better interest rates on your next car.
Can I Buy A Car After Filing For Chapter 7
Borrowing for a car is possible after discharge, but a Chapter 7 filing remains on your credit report for 10 years. Chapter 7 bankruptcy discharges eligible debts, creating a clean slate. Chapter 7 is known as liquidation, and proceedings could require some of your property to be liquidated to repay debts. Borrowers must wait until the Chapter 7 bankruptcy is discharged before applying for a loan. The Chapter 7 process generally takes four to six months. Borrowers may need to show their discharge order before being considered for a car loan.
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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.
Can You Keep Your Car If You File For Chapter 13
In Chapter 13 bankruptcy, you are allowed to keep all of your property including your nonexempt assets. The Chapter 13 trustee does not sell your property to pay your creditors. In return, you pay back a certain amount of your debts through a repayment plan. This means you can keep your car. However, if your car has nonexempt equity, you must pay your unsecured creditors an amount equal to the nonexempt portion through your plan.
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Getting A Car Loan After Bankruptcy
It can be difficult to build your credit back up following a setback like this, but getting a car loan after bankruptcy is possible. A bankruptcy car loan is a good way to help your credit recover once you’ve received a discharge from a Chapter 7 or Chapter 13. The process of getting a car loan following a discharged bankruptcy is fairly simple.
Like with any other bad credit auto financing, you need to meet the lender’s requirements to qualify. Besides meeting the income, employment, and residency requirements most lenders look for, there are a few tips to keep in mind:
- Check your credit – Make sure you check that the discharge shows up on your credit reports, check for overall accuracy, and view your credit score to see where you stand before visiting a dealership.
- Amount matters – The less money you borrow, the easier it should be for you to get approved. A good way to keep costs low is to finance a used vehicle. Keep in mind that you’ll need a reliable vehicle, not just an affordable one.
- Prepare a down payment – The bigger your down payment, the less you have to borrow. Subprime lenders typically ask for $1,000 down or 10 percent of the vehicle’s selling price, whichever is less.
- Cosigners can be a big help – In fact, lenders sometimes require bad credit borrowers to have one. But, before you ask a friend or family member to put their credit on the line, be sure you both know what this means.
Average Interest Rates For Car Loan After Chapter 7
Filing either Chapter 7 or 13 have roughly the same effect on credit scores. However, chapter 7 filers cant file again for another eight years, which shows a lower risk of debt being charged off. Each of the two types of bankruptcy has its advantages and disadvantages.
The higher the borrowers credit score before a bankruptcy filing, the farther it will drop after the filing. Borrowers with low credit scores before bankruptcy may not see their scores fall as far. The reduction in credit score is also based on the number of accounts included in a bankruptcy filing.
Interest rates on car loans are tied to credit scores from the three major credit bureaus: TransUnion, Experian, and Equifax. Credit scores range from 300 to 850, with 300-500 considered deep subprime and 501-600 considered subprime.
Used cars carry a higher interest rate since they have less value and provide less collateral for the loan. Rates for deep subprime borrowers can be around 19%, while subprime borrowers rates can be about 16%. New cars have more collateral for a secured loan and have lower rates for those who qualify. Rates for deep subprime are around 14%, and for those with subprime credit scores, the rate is about 11%.
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What Only Chapter 13 Bankruptcy Can Do
Chapter 7 and 13 each offer unique solutions to debt problems. The two bankruptcy types work very differently. For instance, how quickly your debt will get wiped out will depend on the chapter you file:
- Chapter 7 bankruptcy. This chapter takes an average of three to four months to complete. Learn more about erasing your debt in Chapter 7 bankruptcy.
- Chapter 13 bankruptcy. If you file for Chapter 13 rather than Chapter 7, you’ll likely have to pay back some portion of your unsecured debts through a three- to five-year repayment plan. However, any unsecured debt balance that remains after completing your repayment plan will be discharged. Find out how to pay off or discharge your debts in Chapter 13 bankruptcy.
Chapter 7 is primarily for low-income filers, and therefore, it won’t help you keep property if you’re behind on payments. But, if you have enough income to pay at least something to creditors, then you’ll be able to take advantage of the additional benefits offered by Chapter 13.
Here are some of the things that Chapter 13 can do.
Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan that will allow you to make up the missed payments over time. To make this plan work, you must demonstrate that you have enough income to pay back payments and remain current on future payments. Learn more about your home and mortgage in Chapter 13 bankruptcy.
Will A Judgment Creditor Take My Car
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In a Nutshell
The short answer to the question, âCan a judgment creditor take my car?â is âMaybe.â Generally, creditors will only take a vehicle if your car has value.
Written byAttorney Karra Kingston.
If you have fallen behind on your unsecured debts, credit card bills, or personal loans and creditors or debt collectors have obtained a judgment against you, you may be wondering if those creditors will be able to take your car and sell it to pay off the debts you owe. This article will discuss how a car is treated when a creditor obtains a judgment against you and how to determine whether your car is at risk of being sold by a judgment creditor.
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Redeem The Car Loan With A New Lender
Bankruptcy law permits a car owner to reduce the current car balance to the cars fair market value. For example, if you owe $15,000 and the car is worth only $10,000 then you may be eligible to reduce the car balance by $5,000 with a new, post-bankruptcy loan.
A motion to redeem the car loan requires judicial approval. You will apply for the loan with the new lender and that lender will provide a new car loan offer. Then you will file a motion, along with the offer, with the court. The current car lender will either agree or disagree with the new car loan value. At that point, you will either reach a settlement on the value between the two lenders or will wait for a judicial decision on the fair market value of the car.
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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