All Rights Reserved. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. If you aren't making payments on a car, then you'll be able to keep it if its value falls under your state's vehicle exemption amount. Even though the car lender’s security interest in the vehicle is unaffected by your bankruptcy, a Chapter 7 discharge eliminates your personal liability on the loan. Chapter 7 bankruptcy wipes out many qualifying debts, but there is a catch—if you own too much property, the bankruptcy trustee can sell some of it and pay the proceeds to your … When you file a Chapter 7 bankruptcy you are allowed, by law, to protect a certain amount of personal property (furniture, clothing, jewelry, car, etc.) People often wonder how Chapter 7 bankruptcy will affect their ability to keep their car. If you are not current on your payments you lose some leverage since your lender doesn’t have to renegotiate, but the best way to keep the car is to get the lender to sign a reaffirmation agreement. These include the following: Bankruptcy exemptions – the state of North Carolina allows you to exempt up to $3,500 in equity on your car, truck, or other type of vehicle. Impact of Chapter 7 on Your Vehicle If you are filing for bankruptcy under Chapter 7, you may be able to keep your car by using the exemption for it. Exempt the equity in your vehicle as permitted by Missouri law. In chapter 7 bankruptcy, a personal auto exemption will protect up to $5,000 of equity in your car or cars ($10,000 if you are 60+ years of age or disabled) from the bankruptcy trustee. If the equity value is worth more than you can protect, the bankruptcy trustee assigned to your case will likely sell it and distribute the nonexempt proceeds to your creditors. In many cases, a bankruptcy filer can choose to either keep the vehicle or surrender it to the lender. Being able to keep your car during a bankruptcy depends on whether or not the value of your vehicle meets the exemption you choose. In many jurisdictions, in order to reaffirm a debt, you must demonstrate to the Bankruptcy Court that you will have the financial ability to make the future payments on that obligation. But if you have unprotected equity, the trustee can sell your car, give you your exemption amount, and distribute the remaining amount among your creditors. Option 2- Redemption . If you’ve owned the car for greater than two and a half years and 910 days, and you’re, actually upside down on it. Keeping Your Car during Bankruptcy. Here are some other options you’ll have in Chapter 7: Find more about what happens to cars in bankruptcy in Chapter 7 Bankruptcy and Your Car. If you have a, if you actually are like oh money on it, normally you get to keep the whole thing. If you plan on filing for bankruptcy, you’ll be able to keep your home if you can meet the requirements of the bankruptcy chapter that you choose. Though your car can be impacted in other forms of bankruptcy, Chapter 7 is the one that stands the greatest chance of causing a noticeable change. If you are still making monthly payments on the car however, it could be a different story. If you are no longer making payments on a car, and it has no equity beyond the exemption, you can protect it entirely. When dealing with a Chapter 7 bankruptcy and your car, it comes down to whether or not you’re behind on your payments. There are a number of strategies you can use to keep your vehicle when filing for Chapter 7 bankruptcy. If you do not owe money on the car, you may be required to pay to keep it unless the full value of the vehicle can be exempted. Viewer question: What happens to my car in Chapter 7 bankruptcy? When you file either a Chapter 7 straight bankruptcy or a Chapter 13 payment plan case, you'll be able to structure it so that you can keep your vehicle. And, as a practical matter, you should be current on your payments when filing because Chapter 7 doesn’t have a mechanism that will help you catch up on missed payments. Proudly Serving Greater Houston, Bryan/College Station, and The Rio Grande Valley. Most states provide a bankruptcy exemption of a certain amount for a vehicle. If you elect to reaffirm the debt, and the lender agrees, you will be obligated to make the payments on your car just like you did prior to your Chapter 7. If you are no longer making payments on a car, and it has no equity beyond the exemption, you can protect it entirely. If you make all plan payments, not only will you receive a bankruptcy discharge but also a free and clear title to the car. If you can’t work out a deal with the lender, you’ll lose it to repossession. Chapter 7 bankruptcy allows you to keep or surrender your car or truck. A Chapter 7 bankruptcy is a short process, generally lasting only four to six months. Your best course of action will depend entirely on what works best for your situation. There are pros and cons to reaffirmation agreements, so make sure you discuss this with your Houston bankruptcy attorney before signing a new agreement with your automobile loan provider. This may be a good option if the value of your car is much lower than the amount of your loan. Summary. In another state with lower exemptions, the Chapter 7 trustee might be able to sell your car, pay you the exempt amount, and keep the rest to pay your creditors. In fact, you’ll probably be able to keep it even if there’s a small amount of nonexempt equity because the car won’t be worth selling. Most people can keep their car and get debt relief by filing bankruptcy. So how long can the debtor keep her car after filing chapter 7 bankruptcy if she doesn’t want to keep paying for it and can’t afford to pay the creditor the car’s value in a lump sum? In many cases, our clients retain their cars for weeks if not months after filing bankruptcy. Redeeming a Car in Chapter 7 Bankruptcy. To learn more about these options, see Your Car in Chapter 7 Bankruptcy. Not surprising, the vast majority of our readers (87%) who filed under Chapter 7 were able to keep their cars. When you own a car and file for Chapter 7 bankruptcy, what happens to your car will depend on whether or not you owe money on the vehicle. Therefore, if you want to keep that car, you will have to continue making payments or at least pay the creditor the value of the car. Chapter 13. In addition to continuing your regular car payments, your lender may require you to “reaffirm” your car loan in order to keep the car. Under Chapter 7, you can keep assets, including your house and car, if the asset is exempt under federal or state law. If you are behind on car payments, your car may be sold off. If you can protect your car from the bankruptcy trustee, you must choose one of the options available in Chapter 7 for handling secured debt -- redemption, reaffirmation, or surrender. Learn more. I’ll let you know exactly what filing a Chapter 7 bankruptcy would look like, and what filing a Chapter 13 bankruptcy would look like, and how that would affect your ability to keep your car or your house. However, filing for Chapter 13 bankruptcy might be a better option for you if you are facing foreclosure or have significant equity in your home. You can catch up on missed mortgage payments in this chapter. If you don’t pay the loan as agreed, the lender’s security interest, or lien, allows the lender to repossess the vehicle. If your car’s value exceeds the maximum exemption amount your car can be sold in chapter 7 bankruptcy; however, you will receive its exempt value in the form of a payment. Common exemptions include homes, vehicles, personal property, household goods and appliances, but state laws vary. An average attorney’s fee for Chapter 7 case can range between $900-$2,000 depending on the complexity of the case. When you file Chapter 7 , you have at least three choices in how you deal with your car loan: Your bankruptcy lawyer can also approve the reaffirmation agreement for you as long as the new payment doesn’t create a hardship for you, and thus will allow you to avoid attending a reaffirmation hearing. If you own a 2005 Honda Accord with no liens and a wholesale value of $5,200, a Chapter 7 trustee in a South Carolina case probably couldn’t sell your car, because you’d be entitled to claim $5,650 in equity in that car exempt. People with lots of equity in their houses lose a portion of the tax refund for one year. You have a few options to pursue if you want to keep your car in a Chapter 7 bankruptcy, but you have to act fast or it can be used to pay back your creditors before your remaining debt is wiped away. Whether or not you will lose your home depends on many factors such as if you are current on your mortgage. When you agree to make one lump sum payment to the trustee for the value of the car, this is known as redemption, and can be an effective strategy for minimizing your debt using bankruptcy. If you’re behind on secured payments when you file for Chapter 7 bankruptcy, a creditor can ask the court to lift the automatic stay (the order preventing creditors from collecting against you) and allow the bank to proceed with foreclosure. As with a house, you can keep your car in Chapter 7 bankruptcy if you’re current with your loan payments (or the car is paid off), and your state’s laws allow you to exempt your equity in the vehicle. Under Chapter 7, you can keep assets, including your house and car, if the asset is exempt under federal or state law. The answer is no. Common exemptions include homes, vehicles, personal property, household goods and appliances, but state laws vary. When you file Chapter 7 bankruptcy, you are “in the drivers seat” with some choices on how to keep the car. Must the car be surrendered immediately? Debt Problems? When you file for Chapter 7 bankruptcy protection you’re looking to wipe out debts and keep as much of your property as possible. If you are filing for bankruptcy under Chapter 7, you may be able to keep your car by using the exemption for it. Chicago - … You can only use it for debts for which you are up to date. © 2020 Baker & Associates. If you’re filing for Chapter 7 bankruptcy, you may want to keep your car or your home. In Minnesota, people without a lot of equity in a house, and renters, get to keep their tax refunds. Each state decides the property its residents can keep (it will be listed in the state’s exemptions) and whether its residents can use the: If you can exempt all of the equity in your car, you’ll be able to keep it. How to Assume or Reject a Car Lease. This will allow you to keep your automobile under similar terms to your original agreement although you may be able to negotiate better terms. Therefore, if you want to keep your car, either you must enter into a reaffirmation agreement with the lender, or you must redeem the car by paying the lender, in one lump sum, the full outstanding balance owed on the car. A car is an essential asset when it comes to getting to and from work, […] You will need to know whether the lender considers your car loan in default before you convert to a Chapter 7. Your Car in Chapter 7 Bankruptcy As with a house, you can keep your car in Chapter 7 bankruptcy if you’re current with your loan payments (or the car is paid off), and your state’s laws allow you to exempt your equity in the vehicle. You have a few other considerations that you’ll have to make if you financed the vehicle and are still making payments. In that case, the trustee will “abandon” it. In a Chapter 7 bankruptcy, if the equity in your vehicle meets or is below the exemption amount, you can keep your car one of two ways: Reaffirm your loan – When you reaffirm a loan in a Chapter 7 … Once you and the lender come to terms, you must file this with the bankruptcy court and get it approved by a bankruptcy judge. The attorney listings on this site are paid attorney advertising. If a consumer decides to keep a car that they're still paying on after filing a Chapter 7 Bankruptcy, they have a couple of options. Furthermore, a seasoned bankruptcy expert will have the experience to guide you through the process while allowing you to keep the maximum amount of what you own and discharge the most amount of debt. Therefore, if you owe more than the car is actual worth according to fair market value, you effectively discharge the difference. If you have a car when you file for Chapter 7 bankruptcy, you could find yourself with a big decision to make. Whether you can keep your car in Chapter 7 depends on whether you are behind on your car payments (unlike Chapter 13, Chapter 7 doesn't allow you to make up arrears through the bankruptcy), the amount of your car loan (if any), and any available exemptions you can apply to that loan. When you surrender your car in chapter 7 bankruptcy you are not liable for any deficiency you owe the lender. You can only do this if the car is exempt or the trustee has "abandoned" the property (decided not to sell it). It depends on how much your vehicle is worth, whether you are up to date on your auto loan payments, and whether you decide to use the state or federal bankruptcy exemptions. On the one hand, you want to keep your car and receive the benefit of post-bankruptcy credit reporting of future payments. A car can be redeemed in Chapter 7 whether or not the payments are current. If substantial nonexempt equity exists, however, here’s what the trustee will do: Some trustees will allow you to pay the trustee for the nonexempt equity and keep the car. Reese Baker is Board Certified by the Texas Board of Legal Specialization in Business Bankruptcy and by the American Board of Certification in Consumer Bankruptcy. Keeping Your Car in Chapter 7. Yes, you can keep you car in chapter 7 bankruptcy. In some states, the information on this website may be considered a lawyer referral service. This gives you time to decide which course of action to take with your car. There are a number of strategies you can use to keep your vehicle when filing for Chapter 7 bankruptcy. If you own your car outright whether you keep your car depends on its value. One choice is to give it back. Just like redemption in chapter 7 bankruptcy, if the value of the collateral is significantly less than the unpaid balance of the loan, the chapter 13 plan can provide for payment of the value of the car as part of your plan payments to the trustee. Copyright © 2020 MH Sub I, LLC dba Nolo ® Self-help services may not be permitted in all states. Talk to a Bankruptcy Lawyer. If you own a car worth $5,000 and your state allows a $6,000 car exemption, then you can keep your vehicle. Debtors usually use the income earned after the bankruptcy or get a loan from friends or family. In this case, you would be allowed to keep your vehicle. The option you choose determines whether you can keep using the car and whether you will be liable for lease payments, excess mileage, or other penalties after the bankruptcy. Let’s say you want to keep the car but it’s worth less than the amount due on the loan. The short answer is maybe. There are two primary ways to keep your car after filing for Chapter 7 bankruptcy if you are still in the process of paying it off: Reaffirming the car debt: If you reaffirm your car debt, you agree with the party that you are making payments to and promise not to discharge the debt during the Chapter 7 filing. For example, say your car is worth $3,500, and the exemption for motor vehicles in your area is up to $6,000. Will I be able to keep my car if I file a Chapter 13 Bankruptcy? In Chapter 7 bankruptcy, whether you keep your car depends on the car loan amount (if any) and any available exemptions you can apply to that loan. For instance, the trustee might agree to give you a few months to pay for the equity minus sales costs. While you can keep your home, car or truck, and retirement accounts, some other things become part of the bankruptcy estate under Chapter 7 filing rules. If your car is paid off, you can generally use a bankruptcy “exemption” to protect both your car and the equity in your car. Similar to the above scenario, if you file Chapter 7 you can keep your car by meeting two conditions: Stay current on your car payments. Chapter 7 Bankruptcy. COVID-19 – Bankruptcy Court General Orders, Popular Restaurant Chains Filing For Bankruptcy, AMC Movie Chain Seeks Bankruptcy To Bounce Back, Houston Attorney Elected To Texas Bar Foundation. If you are making your vehicle payments directly yourself, and are on time with them, you can convert to Chapter 7 and keep your vehicle if you agree to 'reaffirm' the debt, or if you agree to pay off the present value of the car or the amount of the debt (whichever is lower). Most states provide a bankruptcy exemption of a certain amount for a vehicle. This means that anyone fiing bankruptcy can protect certain types of property up to a certain amount. Luckily, you’ve got a few options. Credit Card Debt? When you file for Chapter 7, the following becomes true regarding your vehicle: You can potentially modify your loan agreement to reduce payments or improve terms – You may be able to negotiate for reduced payments based upon the car’s actual value. If your car is financed you can always surrender your car in chapter 7 bankruptcy. If you want to hold on to your car after Chapter 7, you'll have to sign a reaffirmation agreement. If you file for Chapter 7 bankruptcy and local bankruptcy laws allow you to exempt all of the equity you have in your car, you can keep the vehicle—as long as you're current on your loan payments. To qualify for redemption, the car must be used for personal, family, or household use, and you must pay for the car in one lump sum payment. Whether you ultimately keep your car depends upon the value of the car, your payment history, and negotiable factors. In Chapter 7, you also have the option of purchasing your car outright from your lender at the retail value of the car at the time your bankruptcy is filed. You just reaffirm the agreement in a chapter seven and you basically get to keep your car making the payments, as you always have. Usually, the price you’ll have to pay will be discounted by the amount the trustee saves in sales costs. Your use of this website constitutes acceptance of the Terms of Use, Supplemental Terms, Privacy Policy and Cookie Policy. Even if your payments are up to date, creditors may still make you pay the remaining balance to keep the vehicle. These include the following: Bankruptcy exemptions – the state of North Carolina allows you to exempt up to $3,500 in equity on your car, truck, or other type of vehicle. Massive debt and wage garnishments can cause it to be difficult to stay current on your automobile loan and so it’s not a surprise that individuals worry that by filing Chapter 7 bankruptcy, they will lose their car. If you’re tight on money, you may not be able to afford this, making you … distribute the remaining funds to your creditors. So how long can the debtor keep her car after filing chapter 7 bankruptcy if she doesn’t want to keep paying for it and can’t afford to pay the creditor the car’s value in a lump sum? As previously mentioned, a reaffirmation agreement is a new agreement made between a creditor and the debtor that waives discharge of a debt that would otherwise be dischargeable in a pending bankruptcy proceeding. If you owe money on a car, you can keep it by reaffirming the debt and continuing to make payments. If you own your automobile and its value is below your bankruptcy exemption amount, you are at no risk of losing your vehicle and will be able to keep it when filing for Chapter 7 protection. You don’t have to give up all of your property when you file for Chapter 7 bankruptcy. When you file for bankruptcy, you can protect property that you’ll need to work and live by “exempting” it from your bankruptcy case. While you can keep your house in chapter 7 bankruptcy in most cases, it is possible that you may lose your home. Because filing for bankruptcy doesn’t get rid of the lender’s lien, if you want to keep the car, you’ll have to continue making payments or pay for the car another way. (To learn more about how car exemptions work, and to find the motor vehicle exemption amount in your state, see The Motor Vehicle Exemption in Bankruptcy.). So if you’re behind on your car loan before you file for Chapter 7 bankruptcy, and you don’t have the money to redeem it, you’ll be able to keep your car only if your lender is willing to work with you. When you purchased your house or car, you “secured” the loan by agreeing to give the property back if you failed to keep your balance current. Not surprising, the vast majority of our readers (87%) who filed under Chapter 7 were able to keep their cars. Especially if you have a terrible interest rate on the car—and if you can put your hands on a junker—give them the car back. The reason is that in a Chapter 13 bankruptcy, your debts are restructured into a payment plan, meaning you can continue paying these debts and thus continue to keep the underlying asset, in this case, a car. Many times, individuals rely on their automobile to get them to work and take care of basic necessities such as grocery shopping and doctor visits. Chapter 7. This option could be a game changer because it saves you money in the long run. If you’re unable to afford the filing fee, you can petition the court to have it waived or to pay it in installments. The Motor Vehicle Exemption in Bankruptcy. Not only can retaining a bankruptcy lawyer help you get your bankruptcy petition approved, but they can also help you keep your vehicle while avoiding the need to attend reaffirmation hearings. You’ll have to use funds that aren’t part of the bankruptcy. In understanding how much protection you qualify for includes reviewing the amount of equity you have in your vehicle. You’ll need to be current on your payment and able to protect all of the home equity with a bankruptcy exemption. Once you sign a reaffirmation agreement and it’s approved by the bankruptcy court, you know for sure that you can keep the property after your Chapter 7 bankruptcy is cover. When you redeem the car in the bankruptcy, you pay the lender either the outstanding balance or the value of the car, whichever is less. Keep in mind that the bank would much rather settle the amount and get a lump sum payment versus repossessing the vehicle so don’t be afraid to ask for a better deal. Some states allow you to use either the federal exemption list or your state's list of exemptions; others require you to use only your state's exemptions. How to find out whether you can keep your car, home, or other assets in a California Chapter 7 bankruptcy case. And, as a practical matter, you should be current on your payments when filing because Chapter 7 doesn’t have a mechanism that will help you catch up on missed payments. For the vast majority of individuals, owning a car is an absolute necessity, so it's no surprise that one of the foremost thoughts in the minds of many people that intend to file for bankruptcy is whether they can keep their cars. It’s possible to keep your car loan during a Chapter 7 bankruptcy, but it may not be a wise idea, depending on how much you owe. In exchange, the bankruptcy trustee is allowed to sell your nonexempt property and use the proceeds to pay your unsecured creditors. Attorney Reese Baker is responsible for the content of the advertisement. Keeping Your Car. First, you likely pledged the car as collateral when you took out the loan, making the loan a secured debt. An experienced bankruptcy lawyer can advise you of the effect bankruptcy will have, and whether you … Many consumers may wonder if they can keep their vehicle in a Chapter 7 bankruptcy. Also, you must indicate to the court whether you intend to reaffirm the debt, redeem the car, or surrender the car (more below). It is a common misconception that you have to give up everything valuable during chapter 7 bankruptcy. In Chapter 7 bankruptcy there are some rules. If you’re concerned about filing for bankruptcy and you have a house or a car that you want to keep, please come in and speak with me, an experienced bankruptcy attorney. For a Chapter 7 case, the filing fee recently was raised to $335. For you, that may include a home or car. Privacy Policy || Site Map. The following options are available when you file Chapter 7 bankruptcy: If you own a car, you can keep it under either the Tennessee or federal bankruptcy exemptions as long as it does not exceed a certain value. 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