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Managing debt can be difficult, especially when you face financial hardships. A top concern of debtors considering filing bankruptcy is what happens to their car and if they get to keep it, especially for their job. For most people, access to a vehicle is a lifeline and a way to get to work every day if they do not work from home. A chapter 13 bankruptcy lawyer can help you keep your car, even if you owe more on it than it’s worth. Most people who file for Chapter 13 protection keep all their belongings, including their vehicles. So, if you are wondering if you can claim bankruptcy and keep your vehicle, you can. Read on to find out more.If you're behind on your bills, a Chapter 13 bankruptcy lawyer may be able to help you keep your car. Here's how!Click To Tweet
Is it Possible to Keep My Car after Claiming Bankruptcy?
Yes, you can. However, it is a slightly complicated process. This article will discuss everything you need to know to allow you to maintain the possession of your car(s) after filing for bankruptcy.
However, you need to decide if keeping your car is wise. For example, if you have two or more vehicles, is it wise to keep them during bankruptcy? Before answering that, you need to ask yourself these two questions:
How Much Is Your Car Worth?
What is the current market value of your vehicle? You can research several websites like Edmund, type in your vehicle model and make, and quickly get an accurate market value. If you are still paying your car loan, you will subtract the outstanding debt from the market value to know the current equity of your vehicle.
One of the biggest things to think about in 2022 is your car’s equity when filing bankruptcy. Used vehicles can actually have positive equity, thus needing bankruptcy exemptions. A chapter 7 or chapter 13 bankruptcy lawyer can help you with this.
Have you Fallen Behind on Your Car Payments?
You also need to honestly answer if you are current with your car payments or if you are falling behind. If you have full ownership of the car and aren’t making any car payments, this is debatable. Your payment status will be considered during bankruptcy proceedings and used to determine whether you can keep the vehicle.
Additionally, you should find out if your lender used the vehicle as collateral. You may be getting calls from debt collectors if you are behind on your vehicle. In that case, you can use this phrase to help stop debt collectors immediately in their communications.
After answering these questions, you can decide if keeping your car(s) is wise. Here is how you can keep your vehicle under the two common types of bankruptcies.
How to Keep Your Vehicle in Chapter 7 Bankruptcy
Chapter 7 is also known as liquidation property. Under Chapter 7, you surrender all your non-exempt assets to a Chapter 7 trustee. The trustee will liquidate some assets and use the proceeds to pay secured debts.
In return, your unsecured debts are discharged. Unsecured debts do not have collateral, like credit card debts and medical bills. In contrast, secured debts are those debts that have collateral—for example, a mortgage loan linked to the house.
Chapter 7 bankruptcy takes a shorter time and grants you a quick financial start by only repaying some of your total debt. Here are three options to keep your vehicle when filing for Chapter 7 bankruptcy:
1. Use Chapter 7 Bankruptcy Exemptions to Cover Your Car’s Equity
Most people fear filing Chapter 7 bankruptcy because they fear losing their assets to liquidation. However, there are many assets you can save from liquidation using exemptions. The type of asset and amount you get to retain depends on your situation. However, the exemptions work differently if you want to keep your vehicle.
If your vehicle’s equity can be protected by the motor vehicle exemption or wildcard exemption, you can keep your car. Nonetheless, exemptions vary from state to state. Find out the exemptions in your state and enter your vehicle in an applicable exemption category to prevent the trustee from selling it.
2. Reaffirm the Loan
Filing for bankruptcy helps you get out of debt since the courts legally break the contract between you and your lender. However, you would like to keep the loan agreement in some unique circumstances, especially if you would like to retain the asset securing the debt, like a car.
Reaffirming the loan is the process where you consent to remain responsible for repaying the debt so that you can retain the collateral. So, you and your creditor will draft a new contract and submit it to the court. In most cases, the new contract is on the same terms.
Once the bankruptcy court and your creditor agree, you can reaffirm your car loan. However, you should know that by reaffirming the loan, you agree to repay the entire outstanding balance together with interest and other late payment charges or fees accrued.
Also, if you happen to default on the loan after redrafting the agreement, you remain liable for the whole amount. Some may reaffirm the loan because they are concerned about the interest rates of getting a car loan after bankruptcy.
3. Moving to Redeem
You can also retain your car if you move to redeem it. Redeeming means paying your lender the current actual value of the asset. This is a suitable option if you owe more than the asset’s worth. However, you need to meet the car’s equity to qualify for redemption.
NB: If you have fallen behind on your monthly car payments, your car is at risk of being repossessed. Therefore, consult a bankruptcy attorney to know the next course of action to avoid repossession.
What If I Don’t Want to Keep My Car in Chapter 7 Bankruptcy?
After asking yourself the two questions above and you decide you don’t want to keep your vehicle, what do you do? You will have to surrender the car. Before surrendering, ensure that you aren’t liable to pay any outstanding balances, later fees, or interest. If you had someone cosign your vehicle loan, they might be held responsible for a portion of the debt.
If you only have one car, you need to figure out a new mode of transportation as you surrender your vehicle. In most cases, surrendering your vehicle is a good move that frees you from debt and helps you buy an affordable used car.
How to Keep Your Vehicle with the Help of a Chapter 13 Bankruptcy Lawyer
Unlike Chapter 7 bankruptcy, which focuses on liquidation, Chapter 13 bankruptcy allows you to create a new debt repayment plan that can help you get rid of debt within 3 to 5 years. A Chapter 13 repayment calculator can help you estimate your Chapter 13 payment plan. You can find Chapter 13 bankruptcy examples online with an example payment plan.
You will be making a specified percentage of debt to your non-exempt secured (total amount of outstanding secured debt minus exemptions allowed under the bankruptcy law) and unsecured debt. Depending on your income level, you might also have to pay some percentage of your unsecured debt so it’s best to have a chapter 13 bankruptcy lawyer. You can keep your car by:
1. Getting a Car Loan Cramdown
A car loan cramdown is a situation where you pay for the current value of the equity if the outstanding debt is more than the car’s current value. If the cramdown is approved by your chapter 13 bankruptcy lawyer, you have the same duration as your repayment plan to make your payments and pay off the entire car value.
The amount that remains from your car loan will be considered unsecured debt, and you’ll only need to pay a percentage of the amount in your payment plan. After the bankruptcy proceeding and completing the payment plan, you will have full ownership of the car.
2. Using an Exemption to Cover
When filing for Chapter 13 bankruptcy, you get exemptions for secured debts to a certain amount. If you have enough exemptions, you can use them to cover the equity of your car to prevent it from being repossessed.
Can a Chapter 13 Bankruptcy Lawyer Help with Luxury Vehicles?
Exemption guidelines vary from state to state. So, in some states, secured debt payments are considered allowable withholdings, while in other states, the decision rests on the bankruptcy court. But if you have payments on a vehicle and would love to retain the car, you need to prove to the bankruptcy court that:
- You can make timely monthly car payments under your Chapter 13 payment plan
- Your luxury vehicle is a necessary expenditure
If the court approves your plan, you can keep your vehicle (including a luxury car in bankruptcy) during the repayment period.
What to do if You Don’t Want to Keep Your Car in Chapter 13 bankruptcy
Not everyone would like to keep their car. So, if you don’t need to keep your vehicle, you can surrender it. Surrendering helps save the income you would have used to repay expensive monthly car payments, leaving you with more income to repay your other debts.
If you work from home, you may not need a vehicle, but many Americans need a car to get to work. Thus, many are concerned about whether they will lose their vehicle in Chapter 7 or 13 bankruptcy.
If you are feeling overwhelmed by your debt and worried about how you will make your next car payment, a Chapter 13 bankruptcy lawyer may be able to help. Thankfully, many can keep their house or car when filing bankruptcy.
You fully understand your options and how to keep your car under the two common Chapters of bankruptcy. The main question remains, do you really need to keep your vehicle during bankruptcy? Don’t be afraid to make a tough decision in your best interest.
Do you know anything about chapter 13 car loan interest rates?
Krystle Cook – the creator of Home Jobs by MOM – put her psychology degree on a shelf and dived into a pile of diapers and dishes instead. She is a wife and mother to two rambunctious boys, sweating it out in her Texas hometown. She loves cooking, DIY home projects, and family fun activities.