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What Will Happen to My Car If I File Bankruptcy?
You might be considering bankruptcy, but you are concerned about potentially losing your car in the process. Relax!
Typically, clients can keep their cars, even after filing for bankruptcy.
Why?
The answer is very simple: chances are that you have very little (or zero) equity in your cars.
Read below for further details
Cars That Are Paid Off
If your car is fully paid off, and its value is lower than the allowable exemption, you cannot be forced to sell your car to pay creditors. Your will likely get to keep you car.
If your car’s value exceeds the allowable motor vehicle exemption amount, you will still be able to keep your car. However, you will be required to pay the difference between the exemption amount and the car's value. This money will be distributed by the Bankruptcy Trustee to pay off your creditors.
Auto Loans in Bankruptcy
Chapter 7 Bankruptcy
When filing for Chapter 7 bankruptcy, you have several options. You can choose to surrender your vehicle, by returning it to the lender. Whether you are making payments towards owning or leasing the car, surrendering it releases you from any financial liability. Though you will not have possession of the car anymore, you will no longer be financially responsible for the payments associated with the vehicle.
If you choose to keep your car, there are several options where you can continue making payments and retain your car. Redemption allows you to pay the car lender one lump sum for the current market value of the car, taking into account the year and current condition of the vehicle. Upon paying that amount, you obtain legal title of the car. Redemption is a viable option for those with the financial means to produce a lump sum.
However, if you don't have the money to pay the full market value, there are other options that allow you to keep your car when filing for bankruptcy. A reaffirmation agreement is a new contract that you can enter into with the car lender to continue making payments towards your outstanding debt associated with the car, while you continue using it as you did before filing for bankruptcy.
Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, you are able to keep your car and your car payments are adjusted to reflect your current economic situation. Through chapter 13 bankruptcy, you are given a 3-5 year time period to catch up on any arrears that you have with on your car loan, while continuing to make the regular monthly payments. In addition, depending on how long you've owned the car and today's fair market value of the car, you might be able to "cram down" the outstanding balance while paying off the entire "cram down" amount as part of the bankruptcy payment plan.
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Next Step
With so many alternatives to managing debt, it is important to discuss all of your options with an experienced and knowledgeable professional.
Call us at 201-478-7412, or fill out the form below, to schedule an initial FREE phone consultation.
Our first conversation will simply be to talk about your financial situation and identify the best solution to fit your circumstances.
Whether you qualify for bankruptcy, need to respond to a foreclosure or other lawsuit from a creditor, we will provide you with valuable information for you to make an informed and educated decision that is most appropriate for your situation.
With so many alternatives to managing debt, it is important to discuss all of your options with an experienced and knowledgeable professional.
Call us at 201-478-7412, or fill out the form below, to schedule an initial FREE phone consultation.
Our first conversation will simply be to talk about your financial situation and identify the best solution to fit your circumstances.
Whether you qualify for bankruptcy, need to respond to a foreclosure or other lawsuit from a creditor, we will provide you with valuable information for you to make an informed and educated decision that is most appropriate for your situation.