Keeping Your Car During Bankruptcy
Bankruptcy can be an unpleasant necessity. While stressful at the time, it has the ability to give you a fresh start so you can have a better future. One key concern may be your vehicle. This is especially true if you need the car to get to work or ferry your kids around. You may be able to keep your car during bankruptcy. Here are some answers to questions about cars and bankruptcy.
Does the type of bankruptcy you file matter?
Yes. You are more likely to keep your car if you file chapter 13 as opposed to chapter 7. This is because chapter 7 discharges all debts, and then any valuable items are sold off by a bankruptcy trustee to help offset the debt amount. You can only keep your car if it is determined to be exempt. In chapter 13 you have a repayment plan in place for your debts, with many of the debts reduced so you can successfully achieve the payments. This means that you keep your car unless you choose to sell.
How can a car be exempt under chapter 7?
This depends on how much the car is worth. Each state has a set exemption amount. If the value of the car is under this amount, then you can keep your car. Keep in mind that this exemption amount does not pertain to your home. It is figured under a different, typically much higher, exemption called the homestead exemption." The state exemption applies only to your car, other properties, and personal belongings.
What if the car is worth more than the exemption?
You have two options when this occurs. The first is to come up with the difference between the car value and the exemption and pay this difference to the trustee. The other option is to allow the trustee to sell the vehicle. Once it is sold, you will receive the exemption amount out of the balance, which you can then use to buy a much lower priced vehicle.
Will you still need to make payments if you have a loan on the vehicle?
If the trustee sells the vehicle in a chapter 7 filing, then you will not still have payments. They will pay off the car before dividing the equity. If you keep the car, you will need to remain up to date on your payments. If you are already behind, it is up to you to negotiate with the lender to avoid repossession. You may be able to redeem the debt by paying the lender the full current replacement car value, but this requires a large sum of cash and may not be feasible. A better option is to reaffirm the debt and develop a new payment agreement with the lender.
For those filing chapter 13, the process is much more simple. If you aren't behind on payments, then nothing changes. If you are behind, you can submit the past due payments when you file for bankruptcy. These payments will be absorbed into your repayment plan so that you can catch up on payments. A lower payment may also be negotiated to help you keep up. Contact a bankruptcy attorney for further help. Visit http://www.glaserebbs.net for more information.
