Filing bankruptcy and keeping your car – Before understanding how to keep your car in case of bankruptcy, it makes sense to understand what bankruptcy means in the first place. Bankruptcy usually refers to a situation wherein an individual runs out of liquid currency or liquidity, and is unable to repay his or her creditors with their liquid assets. In such a scenario, to repay the debts of the creditors, fixed assets and other items such as stocks and bonds of the debtor or the person who is filing for bankruptcy, is liquidated (or sold) to pay the debts. Given that a car is also a part of your assets, you may be worried and upset thinking that your car may also be leveraged or sold to meet your debts. However, there are certain ways to exempt certain assets, and this article will teach you how.
If you are unaware as to how bankruptcy works, or how the bankruptcy law in your state functions, the most important and the first step that you must take is to hire the services of a lawyer or hire any sort of legal representation. It is impossible to navigate the intricacies of bankruptcy law without being aware as to what it entails. In case you want a low-income bankruptcy lawyer, you can always find one in your vicinity. Apart from helping you how to file chapter 7 with no money, they will also help you navigate the bankruptcy law while also ensuring that you get to keep your car with you, either under chapter 7 or under chapter 13 laws. Read on further to get a holistic understanding of how these laws work and what you need to do!
Can I Exempt and Keep My Car in Chapter 7 Bankruptcy?
Before understanding how you can keep your car if you file a chapter 7 bankruptcy, it is important to understand what it is, what properties you are entitled to keep, whether you have made your payments, etc. It is also important to understand whether your specific equity is exempt as well. In chapter 7 bankruptcy proceedings, all of your non-exempt properties can be used to discharge your present debts. If your car, whether it is a new car or a used car does not fall under exempt property, it can also be sold at the market rate to recover costs and pay off the creditors.
It is also important to understand the difference between a secured and an unsecured creditor. A secured creditor is one whose debt is secured by an underlying asset, such as stocks, a house, bonds, etc. An unsecured creditor is one whose debt is not backed by, or secured by an underlying asset. During bankruptcy proceedings, the assets that are liquidated which do not fall under the assets that are previously used as securities for the debts of secured creditors, are used to pay off the debts of unsecured creditors.
Is the equity of my car exempt?
Now that you have understood a broad overview of what a Chapter 7 Bankruptcy entails, the next obvious question that anyone will ask is as to whether their car is exempt, especially in terms of equity value. Now, what does this mean – if you owe someone say a 100$, and your car is valued at a sum of 10$, the value of the car is a 100$-10$, equalling a sum of 90$. Depending on the facts and the circumstances of each case, the court determines whether or not the equity value of your car is exempt from being sold, and used to pay off the creditors. It is important to ensure that the value of your car falls within the amount that is exempted to ensure that your car is not liquidated to pay off the debts. If the equity value of your vehicle exceeds the amount granted as an exemption to your car, then the trustee handling the bankruptcy is likely to sell the car to recover the amount and pay off the unsecured creditors. If there is any amount that is remaining post payment of the creditors, you are allowed to retain such an amount.
Do you lag behind in making payments?
The second important facet after understanding how car equity works are to determine if you are currently lagging behind in payments. If you are the owner of the exempted property, you do not have to make payments, but this is only so as long as you meet the payment schedules in time. If you find yourself lagging in payments and you have not yet cleared your debts, you might end up losing your vehicle even if it falls under the category of exempted property. Ensure that you do not find yourself in this predicament as if this happens, it might be difficult for you to retain the ownership of your car.
File bankruptcy and keep your house and car
Now, in the world today, having a car is non-negotiable. Gone are the days when a car was considered a luxury. In today’s times, a car is an absolute necessity as a means of commute, especially in those areas where public transport is inaccessible or badly connected. Therefore, there is no doubt or no surprise that you will want to retain the ownership and custody of your car. Whether it is to drop your children in their school, to travel to work, or if you are a disabled person, the importance of having your vehicle cannot be overstated, and if it is taken away, the consequences are not ideal.
One of the things that you can do in case of a Chapter 7 bankruptcy is to purchase a car from the person who has lent you the car loan at market rate, before filing for bankruptcy. This is especially ideal in circumstances wherein the value of the car that you have is lower than the value of the loan that you have taken. By doing this, you can keep the car in your custody relatively easily.
Remember, when you plan to do this, you must also ensure that you follow the procedures in place to be able to redeem your car and do not violate any bankruptcy proceedings. One of the first things that you will be required to do is to file a motion in the bankruptcy court pertaining to your intent to redeem. This is termed as a ‘motion to redeem’. If you are unsure as to how to file this motion or what filing it entails, you can always take the assistance of a lawyer. Once you have done this, you will be required to submit identification information and other documents that are requested/mandated by the court. This includes aspects such as lender information, as well as the value of your vehicle. Once you have taken these steps, you can redeem your vehicle. Keep in mind that the ability to exercise this option may only be possible in cases wherein the bankruptcy trustee has included your car as exempt from lump-sum sale. If you find that this option does not work for you, you can always consider a reaffirmation agreement.
A reaffirmation agreement, as the name suggests, is the affirmation of something again. It is a written contract between you and your creditors re-emphasizing your intent to repay, as well as a reiteration of the plan of payment. By signing a reaffirmation agreement, you will be, in essence, agreeing to discharge your loan obligations fully despite filing for bankruptcy. Given that you can negotiate the terms of a reaffirmation agreement, if you want to keep your vehicle, this is one of the best options that you can exercise.
The agreement works by excluding your car loan out of the purview of your bankruptcy agreement, wherein you will have to discharge your obligations of the loan, irrespective of the status of your bankruptcy. If you continue to fail to discharge your loan obligations, your car may be repossessed by the lender based on the terms of your original loan agreement, with the changes that the parties have agreed to in the reaffirmation agreement. It is important to note that legally, to effect any changes per the reaffirmation agreement, the written consent of both parties is required.
How do I keep my car in case of a Chapter 13 bankruptcy?
If your car has a high equity value, there is no need to worry as it is easy to retain custody of the car in case of a Chapter 13 bankruptcy filing. However, remember, that you will have to keep up with the required payment schedules of your car loans to keep your car. One might wonder what the flip side of this is, and something that you should think about is the high rate of interest in this scenario. You should ensure that the interest you end up paying does not end up exceeding the actual value of your car.
Therefore, if you are wondering how to keep your car despite filing bankruptcy, you will be happy to see that you have a plethora of options in front of you. Ensure that you weigh the pros and cons of each of these options and select one that suits you the best.