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. The Motor Vehicle Exemption in Bankruptcy. If you are behind on car payments, your car may be sold off. If your car is paid off, you can generally use a bankruptcy “exemption” to protect both your car and the equity in your car. 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. The key to redemption, assuming you have enough to make the payment, is that you pay the total amount of the value of the car despite the loan balance you owe. This gives you time to decide which course of action to take with your car. Chicago - … 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. Viewer question: What happens to my car in Chapter 7 bankruptcy? People with lots of equity in their houses lose a portion of the tax refund for one year. In some states, the information on this website may be considered a lawyer referral service. An average attorney’s fee for Chapter 7 case can range between $900-$2,000 depending on the complexity of the case. 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. 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. If you want to hold on to your car after Chapter 7, you'll have to sign a reaffirmation agreement. 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. 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. If you are behind in your car payments, you will lose your vehicle in Chapter 7 bankruptcy, despite having your equity exempt. With the redemption option, the lender is paid the current value of the vehicle in one lump sum. You can only use it for debts for which you are up to date. Keeping Your Car during Bankruptcy. 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. 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. 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. First determine how much your vehicle is worth. You’ll need to be current on your payment and able to protect all of the home equity with a bankruptcy exemption. For you, that may include a home or car. Many consumers may wonder if they can keep their vehicle in a Chapter 7 bankruptcy. 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. How to Assume or Reject a Car Lease. 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. Copyright © 2020 MH Sub I, LLC dba Nolo ® Self-help services may not be permitted in all states. If your car is financed you can always surrender your car in chapter 7 bankruptcy. Redeeming a Car in Chapter 7 Bankruptcy. You can only do this if the car is exempt or the trustee has "abandoned" the property (decided not to sell it). 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. There are a number of strategies you can use to keep your vehicle when filing for Chapter 7 bankruptcy. 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. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site. 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). (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.). distribute the remaining funds to your creditors. 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. 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. Yes, you can keep you car in chapter 7 bankruptcy. Of course, if you need a fresh start but you need your car just as much, you probably wonder about how this works in Chapter 7 bankruptcy. Your use of this website constitutes acceptance of the Terms of Use, Supplemental Terms, Privacy Policy and Cookie Policy. 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.) 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. This will allow you to keep your automobile under similar terms to your original agreement although you may be able to negotiate better terms. One choice is to give it back. 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. 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 that case, the trustee will “abandon” it. Common exemptions include homes, vehicles, personal property, household goods and appliances, but state laws vary. 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. 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. 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. Under Chapter 7, you can keep assets, including your house and car, if the asset is exempt under federal or state law. Not surprising, the vast majority of our readers (87%) who filed under Chapter 7 were able to keep their cars. For a Chapter 7 case, the filing fee recently was raised to $335. 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. Must the car be surrendered immediately? 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. If you have a, if you actually are like oh money on it, normally you get to keep the whole thing. 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. Do Not Sell My Personal Information. 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. If you owe money on a car, you can keep it by reaffirming the debt and continuing to make payments. 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. 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 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. 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. 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’re unable to afford the filing fee, you can petition the court to have it waived or to pay it in installments. Must the car be surrendered immediately? 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. Exempt the equity in your vehicle as permitted by Missouri law. For instance, the trustee might agree to give you a few months to pay for the equity minus sales costs. For instance, if you owe $15,000 on a car that’s only worth $5,000 at auction and surrender that car in chapter 7 bankruptcy, you will not be liable for the remaining $10,000. If you have a car when you file for Chapter 7 bankruptcy, you could find yourself with a big decision to make. If you’re tight on money, you may not be able to afford this, making you … 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 … In understanding how much protection you qualify for includes reviewing the amount of equity you have in your vehicle. As you know, a Chapter 13 is called reorganization bankruptcy. People often wonder how Chapter 7 bankruptcy will affect their ability to keep their car. If you don’t pay the loan as agreed, the lender’s security interest, or lien, allows the lender to repossess the vehicle. Debt Problems? There are a number of strategies you can use to keep your vehicle when filing for Chapter 7 bankruptcy. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. 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. In many cases, a bankruptcy filer can choose to either keep the vehicle or surrender it to the lender. 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. You just reaffirm the agreement in a chapter seven and you basically get to keep your car making the payments, as you always have. For example, say your car is worth $3,500, and the exemption for motor vehicles in your area is up to $6,000. When you surrender your car in chapter 7 bankruptcy you are not liable for any deficiency you owe the lender. 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. © 2020 Baker & Associates. A car can be redeemed in Chapter 7 whether or not the payments are current. 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. If you are caught up on your car payments, one way to ensure you keep your car in Chapter 7 bankruptcy is to either pay a lump sum to purchase the car at its current value or enter into a reaffirmation agreement, which is essentially a new contract. A car can be redeemed in Chapter 7 whether or not the payments are current. If you own your car outright whether you keep your car depends on its value. 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. If you own a car, you’ll likely be able to protect (exempt) a particular amount of the vehicle’s equity (each state’s law varies). This option could be a game changer because it saves you money in the long run. 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