Can I Keep My Car When Filing For Bankruptcy
Bankruptcies | June 21, 2022 | Christopher Ross Morgan
If you are considering filing for bankruptcy, there are a number of factors to consider if you own a car and you want to keep it. How much you car is worth, and if you still owe money on the car, will determine if you are able to retain possession of your car while in the midst of a bankruptcy.
If I File Bankruptcy Can I Keep My Car In Chapter 7 Bankruptcy
This is an excellent choice if you wish to protect all equity and that is current on payments. It allows you to keep your car if youre able to exempt all equity.
If you fail to exempt all your equity, then the court trustee will auction your car and proceeds are used to pay your creditors.
In some instances, trustees allow you to pay for your nonexempt equity at a discount. You are given a chance to choose from the following options:
- Pay with your post-bankruptcy income for a given period
- Ask for help from family and friends
Youll need to consider the car loan in cases where youve financed your car. Below are the choices you have:
- Reaffirm the car loan
You can opt to continue paying for the loan if you opt to keep the car. The lender allows you to sign a reaffirmation agreement. This renews the old contract based on the original loan terms.
The condition attached to this is that if youre unable to continue with the loan repayment in the future, youll be responsible for the balance after the car proceeds.
- Redeem the car for its value
Lenders allow you to pay a lump sum amount for the cost of the car and youre allowed to keep it. Any remaining balance of the cost of the car is discharged.
- Surrender the car to the lender
This is the best option if the cars value is lower than what you owe the lender. You can also surrender the car to the lender if the interest rates are very high.
What Does It Cost To File For Bankruptcy
The Bankruptcy Court collects a fee to file a bankruptcy petition. It now costs $299 to file for bankruptcy under chapter 7 and $274 to file for bankruptcy under chapter 13, whether for one person or a married couple. The court may allow you to pay this filing fee in installments if you cannot pay all at once. If you hire an attorney to represent you in your bankruptcy case you will also have to pay the attorneys fees you agree to.
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Keeping A Car In Chapter 7 Bankruptcy By Reaffirming The Car Loan
Many lenders will let you keep a car after bankruptcy as long as you’re current on the payment and continue to make the payment after the case ends. The lender will give you the title when you pay the amount due under the discharged contract.
This arrangement works well because if the car breaks down or is in an accident, the filer can stop making payments and give the vehicle back to the lender. However, without a contract in place, the payments aren’t reflected on the filer’s credit report, and the lender can repossess the car at any time.
Filers who don’t want to risk losing the vehicle can sign a new contract called a “reaffirmation agreement.” Although you might be able to convince the lender to agree to better terms, you should assume they’ll remain the same because the lender isn’t obligated to modify the loan. Therefore, while signing a reaffirmation agreement can help you keep a car in Chapter 7 bankruptcy, it isn’t a tool you should rely on if you’re behind on your payments.
Learn more about your car in Chapter 7 bankruptcy.
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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Your House In Chapter 13 Bankruptcy
When youre behind on your mortgage payments but want to keep your home, Chapter 13 bankruptcy might give you the time you need to catch up. Under this type of bankruptcy, the court approves a plan for you to repay the past-due mortgage amounts over three to five years, while continuing to make your current mortgage payments. As long you keep up with both of those payments, your lender cant foreclose on the house.
But how often do Chapter 13 filers succeed in completing their repayment plans? Many of the readers we surveyed were still making their plan payments. Of the others, however, nearly half had their case dismissed before they were able to complete the plan, which usually happens when a debtor cant keep up with the payments. It was likely that these readers didnt have enough income to cover their living expenses as well as the monthly plan payments. Bottom line: Despite good intentions, not all Chapter 13 bankruptcy filers are able to keep their houses.
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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.
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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.
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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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.
Can I Keep My Car If I File Bankruptcy
Home » Frequently Asked Questions » Can I Keep My Car If I File Bankruptcy?
In most cases, individuals or families who file for Chapter 7 bankruptcy can keep their assets, including their cars. Many states, including North and South Carolina, offer exemptions for motor vehicles. This allows each adult to keep their vehicle, assuming that:
- The equity in the vehicle is under the exemption amount.
- They own the car outright or are current on payments.
- They make a payment arrangement before filing for bankruptcy.
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How Does Bankruptcy Protect My Car
Keeping a car falls well within the concept of the fresh start that is a driving force in Bankruptcy Law. Most Americans need their car as a principal means of transportation. For this reason, there are mechanisms known as exemptions built into the US Bankruptcy Code that make it possible to protect your car when you file for bankruptcy. Many of our clients have questions about this legal concept known as exemptions. If you are considering filing for bankruptcy under Chapter 7, you may be wondering if the process can result in the sale of your car in order to pay other debts. While this is possible, experienced attorneys will work with you to make the exclusion of your car out of the bankruptcy process a priority. When you discharge your debts in bankruptcy, this means you will not be legally obligated to pay them.
Not all debts can be discharged in bankruptcy such as child support, alimony, or most tax debt. Due to the need to pay these debts, certain assets are sold to satisfy the non-dischargeable debts. While some assets may be sold, bankruptcy law provides these essential protections called exemptions. With the right legal representation, exemptions provide key advantages, including those that will allow you to keep your car.
How Much Is Your Car Worth
The value of your car is part of what determines whether you can keep it when filing Chapter 7 bankruptcy. It also helps determine your payment plan in Chapter 13. Value is not what the car was listed for when you bought it, or how much youve paid since. States have rules on how to determine a cars value. Most go by retail replacement value, though some states have other measures. Retail replacement value is often called ACV . Its determined by the year and make of the car, its mileage and its condition. Sources like Kelley Blue Book or Edmunds, which list values for cars, can be a good starting point.
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Beware Of Tow Trucks After Discharge
If you have not reaffirmed, the creditor has a right to repo even if you are up to date with the payments but many of the creditors have a policy against that unless you geet behind in your payments. If I can find out that your lender generally does not repo unless you are behind in payments, I might advise against reaffirming. If you have a creditor which says you don’t need to reaffirm, that’s probably a good thing but watch out for the following.
I always try to warn my clients about this. It might not make much sense, but you have to keep this in mind. If you had a Chapter 7 and you did not reaffirm and you are now discharged, the lender will tend to consider itself to be under a court order to not bother you or disturb you in any way. Although they can now repo, they are still prohibited from trying to collect the debt. They might be afraid to send you monthly statements, and certainly might be afraid to write you a letter or call you on the phone. If you are behind in your car payments, unlike before the bankruptcy, you might not receive any warning letters or phone calls.
Under those circumstances, you just might see your car heading down the street hanging off the back of a tow truck with no warning whatsoever. You must, just really have to, stay up to date with your payments so this won’t happen. Don’t expect a warning before the tow truck comes.
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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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.
To Reaffirm Or Not Reaffirm
A reaffirmation agreement is a contract that reinstates a debt as if the bankruptcy never happened. You have to look at them closely, however, because sometimes they change the original terms. They have to be filed with the court before the date of discharge. They also have to be approved by the judge assigned to your case. If your lawyer will sign off on the agreement, the judge will probably not require a hearing before approving. If your lawyer won’t sign off on the agreement – and I do say no sometimes – then you still have a right to do the agreement, but there almost certainly will be a hearing. And I hate to tell you this, but your lawyer is obligated to go with you to that hearing whether he or she thinks it’s a good idea or not.
Reaffirmations are usually just not done in Chapter 13 cases. In a Chapter 13 bankruptcy, assuming there is a car with a loan that you want to keep, the payment Plan will require that the loan is to be paid. Most of the time the plan will say that you will just pay the loan directly to the lender yourself as you did before. About the only time you wouldn’t pay directly would be in a cram down situation, which I’ll explain later. The Plan is legally binding on you and the lender, so once it’s confirmed you shouldn’t be hearing any complaints from the lender – because the plan is a lot like a reaffirmation agreement.
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How To Use A Reaffirmation Agreement To Keep A Car In Chapter 7 Bankruptcy
The bankruptcy law provides an exception to the above rule: if you sign a reaffirmation agreement, the lender cannot consider you in default and repossess the car just because you filed for bankruptcy. So what is a reaffirmation agreement?
A reaffirmation agreement is a document that states that you are agreeing to be responsible for a debt after bankruptcy. So, if you sign a reaffirmation agreement for the car loan, the agreement gets approved, and you later stop payments on the loan, the lender can sue and recover from you any money still owed on the loan. Remember that normally the lender would not be able to do this, because Chapter 7 bankruptcy eliminates your personal liability on the car loan.
The way to ensure that you can keep a car in Chapter 7 bankruptcy, then, is to sign a reaffirmation agreement, and to comply with the other requirements of the loan contract, which usually include making timely payments and keeping the car insured. If you do these three thingstimely sign a reaffirmation agreement, keep making your payments, and keep the car insuredyou can keep the car after Chapter 7 bankruptcy.
There are exceptions to this general approach, such as when the lender makes significant concessions on the interest rate or the principal in the reaffirmation agreement, so it is best to get competent legal advice before deciding how best to deal with a reaffirmation agreement
