When You Can Keep Your Car In Chapters 7 And 13
Read through each situation to determine the likelihood of keeping your car. You aren’t likely to lose it if your situation matches one of the scenarios.
You can keep your car in Chapters 7 or 13 in these situations:
- You can exempt all your car equity and don’t have a car payment.
- You can exempt all your car equity, you have a car payment, and both of the following apply: The vehicle payment will be current when you file, and you can afford to continue paying it after Chapter 7 or during your Chapter 13 case.
You can keep your car in Chapter 7 in this situation:
- If you can exempt all equity but are behind on a car payment, you can “redeem” the vehicle. You redeem a car by paying the lender an amount equal to the current replacement value. Usually, filers get the lump-sum redemption amount from a family member or a bankruptcy redemption loan lender.Expect the interest to be high.
You can keepyour car in Chapter 13 in this situation:
- You can afford to pay for nonexempt equity and car payment arrearages in the Chapter 13 plan, and you can afford to continue making the monthly car payment. Learn more about keeping a car in Chapter 13. You’ll find that you can reduce the interest rate on the vehicle loan and possibly the principal balance owed.
Here are some examples that show how equity and exemptions are applied in Chapter 7 and Chapter 13 cases.
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, properties such as residences and vehicles are secured by a loan. If you want to retain the property in question, you must 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 before 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.
Exemptions During A Chapter 7 Bankruptcy In Georgia
When you file for Chapter 7 bankruptcy, the state of Georgia allows a $5,000 car exemption. This means that if you have less than $5,000 of equity in your car, you will be able to keep it. In addition, Georgia allows a wild card exemption of up to $5,000. The wild card exemption covers any of your property up to $5,000. If you havent used it yet, you can put your wild card exemption towards your car equity.
If your car is worth more than $10,000 in the state of Georgia and you have exhausted all of your exemptions, the trustee of your bankruptcy can sell your car, pay you the amount of your exemptions, and use the remainder to pay back creditors.
If you are filing for bankruptcy jointly with a spouse, you can add together your $5,000 car exemptions, totaling $10,000 in car exemptions alone.
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Getting A Car After Bankruptcy
While youre in the middle of Chapter 7 bankruptcy, getting into another auto loan isnt likely to be possible. The process is so short that many lenders, including bad credit lenders, arent likely to approve you for a loan. Additionally, you need permission from the court to incur more debt while youre in bankruptcy.
Its typically a better idea to wait until your Chapter 7 bankruptcy is discharged to finance another vehicle. After you have your discharge papers in hand, you can work with a subprime lender for your next car. These lenders give you a higher chance of landing an auto loan approval, since they’re well versed in helping people who have lower credit scores stemming from unique credit situations like bankruptcy.
Subprime lenders are signed up with special finance dealerships, and they often assist post-bankruptcy borrowers, unlike traditional lenders who are often hesitant to approve borrowers with lower credit scores.
Protecting Your Cars Equity
When you file bankruptcy, you wont be left destitute. Each state decides which property its residents can safeguard with bankruptcy exemptions. The states exemption list will cover key assets that youll need to maintain a home and job, such as clothing, household goods, electronics, work tools, retirement accounts, and, in most cases, some equity in a homestead and equity in a vehicle.
Exemption amounts vary by state. Even so, because most people dont own high-status items such as recreational vehicles, boats, and luxury cars, bankruptcy debtors can often protect allor at least mostproperty in bankruptcy. What happens to nonexempt property will depend on the bankruptcy chapter filed.
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What About Chapter 13 Bankruptcy
Chapter 13 bankruptcy differs from chapter 7 bankruptcy. Chapter 13 is more focused on repaying debt instead of giving up your assets. Even though its less common than chapter 7 bankruptcy, over 150,000 cases of Chapter 13 were filed in 2020 alone.
There are three categories of debt that youll have to cover if you file for chapter 13 bankruptcy. The first is the debts that you wont be able to bypass. These need to be paid in full if you want chapter 13 to proceed.
The second kind is a secured debt. Car loans factor into this too. Youll have to pay any money you owe on the car or other assets in this category. Should you do this, you have a much higher chance of keeping the car.
The last type you should know about is secured debts. These will stop after you complete the repayment process and are the least concerning of the three.
What Is Equity Of The Car Value
The equity in your car is essentially the fair market value of your vehicle minus the remaining balance of your loan. Therefore, if you still owe $11,000 on your vehicle and the fair market value is $8,500, then you have no equity. While this might be financially frustrating, it does mean that your car has no value in the bankruptcy estate and is protected from being sold without the aid of an exemption.
However, if you do not currently have a car loan, the equity is the full fair market value. This could prove troublesome under bankruptcy. If you file for Chapter 7 under these circumstances, you could be required to turn your vehicle over to the trustee to be liquidated or have your case converted to Chapter 13, where you would be required to pay the value of your car to unsecured creditors. It is critical to discuss the value of your vehicle with our seasoned bankruptcy attorney before filing.
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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.
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.
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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.
Your Car In Chapter 7 Bankruptcy
Chapter 7 bankruptcy takes about four months to complete and doesn’t require you to enter into a repayment plan with creditors. You also get to keep, or “exempt,” a certain amount of property.
In exchange for forgiveness of your qualifying debts, you agree to turn over all of your nonexempt property to the court. The court sells the nonexempt property and distributes the funds to your creditors.
Almost every state allows you to exempt a particular amount of equity in a car . Your first step will be to determine whether you can protect all of the equity. If you can, and you don’t have a loan, your analysis is overyou get to keep the car.
If you can protect all of your equity and you’re paying on a car loan, or if you used the vehicle as collateral for another loan, you’ll have three choices: surrender the vehicle, reaffirm the debt, or redeem the car for the value.
If you can’t protect all of your equity, go to “Unprotected Car Equity in Bankruptcy” below.
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What Happens To Your Car When You File For Bankruptcy
Are you thinking about filing for bankruptcy but arent sure what will happen to your vehicle? Heres what happens to your car when you file for bankruptcy.
Are you considering filing for bankruptcy? Are you worried about what can happen to your assets should the process go through? Well, youre not the only one.
Over half a million people in the U.S. filed for bankruptcy in 2020. While everyones reasons for bankruptcy vary, one thing is certain, youre probably questioning whether to not youll be able to keep your car.
A car is more than a vehicle it is a lifeline that can keep you going in the most difficult times. Make sure to keep reading to find out if youll be able to keep yours if you file for bankruptcy.
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.
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Can I Keep My Car After Filing For Bankruptcy
You might think that you have to give up everything that you own to file for bankruptcy. That isnt true. Bankruptcy laws give bankruptcy filers exemptions. The exemptions allow people to keep things that are the most important to them. They allow you to keep the things that you need the most to live, go to work, and carry out your business. Cars are one of the most important exemptions in Nevada bankruptcy law.
When we meet with people who are considering filing for bankruptcy, they often want to know if they can keep their car when they file for bankruptcy in Nevada. In many cases, the answer is yes. However, you will likely want to work with an experienced bankruptcy lawyer in Las Vegas to ensure you are able to do so.
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.
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Determine Your Car’s Value
In your bankruptcy paperwork, you’ll report your vehicle’s “fair market value,” or the amount you can sell it for, considering its current age and condition. Check websites such as Kelley Blue Book and the National Auto Dealers Association for values. Your bankruptcy trustee will likely want a printout from one of the sites to prove your vehicle’s value.
Can I Keep My House Or Car
The Law Office of David M. Serafin has assisted numerous bankruptcy filers in Denver and other areas of Colorado not only stave off foreclosure or repossession, but also save money by filing for bankruptcy.
In a chapter 7 bankruptcy, known for being a quick and simple means of eliminating debt, its still very possible to keep your house or car if the value of the property is under the applicable Colorado Homestead Exemption and so long as youre current on the mortgage or car payment. And, if your vehicle is upside down in equity, you may be eligible for a Section 722 Redemption. Redemption allows you to keep the vehicle by paying only for its fair market value if you can either pay in a lump sum the value of the vehicle or obtain financing to do this.
Back when property values in Denver and the rest of Colorado were much lower due to the financial crises, we could file a motion to determine secured status of a second mortgage. If your house was upside down as to the first mortgage alone, the second mortgage could be stripped off . For example, the second mortgage could be stripped off and determined to be unsecured for a house worth $400,000 with payoffs on the first two mortgages of $420,000 and $50,000, respectively. In this example, the house would be underwater as to the first mortgage alone.
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Bankruptcy Exemption Limits And Your Car
Second, if there is no car loan, you can keep the car if it is under the allowable exemption limits for your province. Each province has different exemption limits, so you should consult a local bankruptcy trustee to more information.
In most provinces the exemption limit is around $5,000 $7,000, so if a car with no loans is worth less than that, you would be allowed to keep it. If the appraised value of the car is greater than the exemption limit,you could keep the car, but only if you pay into your bankruptcy estate the non-exempt portion.
There are other factors to consider and each case is unique, so I suggest you for a no charge initial consultation to determine your options for keeping your car if you file bankruptcy.
When You Might Lose A Car In Chapter 7
You’ll likely lose your car in Chapter 7 if you can’t protect all of the vehicle’s equity. It will depend on how much equity is available to pay creditors.
Here’s the test: If a reasonable amount would remain for creditors after giving you the exemption amount, paying off any vehicle loans, and deducting sales costs, the Chapter 7 trustee will sell the car. If not, the trustee won’t waste time or effort selling your vehicle. Unfortunately, how much is “reasonable” depends on the type of vehicle, the jurisdiction where you filed your case, the trustee’s practice, and even the state of the economy. A local bankruptcy attorney can help you figure out whether a trustee would likely sell your car to benefit your creditors.
You might also lose your car if you’re behind on your car payment when you file for Chapter 7. The lien rights you gave the lender let the creditor repossess the vehicle when you fall behind, and Chapter 7 doesn’t have a repayment plan provision that will help you catch up on the payments.
The creditor could file a motion asking the bankruptcy court to lift the automatic stay and allow the lender to proceed with repossession. Or, some lenders wait until after the Chapter 7 case closes.
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