Tuesday, June 25, 2024

Can You Keep Your Car Loan In Chapter 7

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Common Misconceptions About Filing Chapter 7 Bankruptcy

What happens to my car loan in a chapter 7 bankruptcy, can I keep it and reaffirm?

Most who file bankruptcy are simply seeking viable solutions to financial predicaments. Filing bankruptcy may prove to be a useful tool to allow some people to restart their lives.

If you considering filing for Chapter 7, there are some things you should know. Unfortunately, there are common misconceptions about filing Chapter 7 bankruptcy, one of which is that lienholders will repossess your car or your home. This isnt necessarily true.

If you already own the car outright and are no longer making payments, you may be allowed to keep your vehicle provided it falls under the vehicle exemption rules. In Texas, there is no specified dollar limit to the exemption of vehicles although there is a cumulative property value limit of $30,000 for individuals and $60,000 for a family. Texas Property Code §42.001

Specifically, Texas law states that a vehicle may be exempt for each member of a family or single adult who holds a drivers license or who does not hold a drivers license but who relies on another person to operate the vehicle for the benefit of the nonlicensed person. Texas Property Code §42.002

If you are still making payments on your car, you have the option of keeping it to avoid car repossession. If, however, youd rather acquiesce the car and be free of its debt, thats another option you may consider, that your Plano bankruptcy lawyer will be happy to discuss with you.

What Happens To Your Car When You File For Bankruptcy

Are you thinking about filing for bankruptcy but arent sure what will happen to your vehicle? Heres what happens to your car when you file for bankruptcy.

Are you considering filing for bankruptcy? Are you worried about what can happen to your assets should the process go through? Well, youre not the only one.

Over half a million people in the U.S. filed for bankruptcy in 2020. While everyones reasons for bankruptcy vary, one thing is certain, youre probably questioning whether to not youll be able to keep your car.

A car is more than a vehicle it is a lifeline that can keep you going in the most difficult times. Make sure to keep reading to find out if youll be able to keep yours if you file for bankruptcy.

A Lawyer Can Help You Decide What To Do With Your Car Loan

You can always take your chances and keep your car by continuing to make payments. Your lender might let you get away with it because they dont want your car back. However, you could lose your car without warning. Youll want to talk to an attorney to help you navigate bankruptcy and manage your finances.

To learn more about what you can do with your car loan after Chapter 7 bankruptcy discharge, contact a skilled bankruptcy attorney at Allmand Law Firm, PLLC today. Dont hesitate to ask us your questions by simply filling our contact form and submit your questions or set up a free consultation.

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What Is Protected Under Virginia Law

Under Virginia bankruptcy law, there are a number of properties that are exempt from repossession or resale by creditors and lenders. The most common examples of property exemptions for bankruptcy in the state of Virginia include the following:

  • Cemeteries and burial funds
  • Motor vehicles
  • Pension and retirement benefits
  • Household goods and furnishings Firearms

When it comes to motor vehicles, Virginia gives filers $6,000 in equity to protect their cars.

For example, if you own a car that is worth $5,000.00 and there is no loan on the car, you have $5,000 in equity. The bankruptcy exemption of $6,000 is more than enough to protect your car and you will keep your car.

If your car is worth $5,000 and you owe more than $5,000, then you have no equity in the car so it is of no value to the bankruptcy trustee and they will abandon their interest in your car. Even if the equity in your vehicle is more than $6,000, you will most likely keep your vehicle. This is because you will be able to use part of what is called the Homestead Exemptions up to $5,000. As long as the equity in your car is not much more than $11,000 you will most likely be able to keep your car.

Telling The Lender You Want To Renegotiate Your Car Loan

Can You Keep Your Car After Filing Chapter 7

When you file for Chapter 7 bankruptcy, youre required to tell your car lender what you plan to do with your financed car on the Statement of Intention for Individuals Filing Under Chapter 7 bankruptcy form. Your creditor will receive notification of your choice after you file the form with the court.

On the statement of intention, youll indicate whether you want to keep the car or let it go back to the bank. If you want to keep it, youll select one of the following three options:

  • surrender
  • reaffirm , or
  • redeem .

When you check the reaffirm box, your lender will send you a reaffirmation agreement with the original terms of your car loan.

If youre paying for your car with monthly payments, bankruptcy will cancel that contractbut giving back the car may not be what you want, especially if the car is essential for work, school, or family commitments.

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Keeping Your Car In Chapter 13 Bankruptcy

If you have significant equity in your car or are behind in your car payments, it’s often easier to keep your car in Chapter 13 than in Chapter 7.

In Chapter 13 bankruptcy, you keep your property and pay back some debts in full and others in part through a three or five-year repayment plan. If you want to keep your car in Chapter 13 bankruptcy, you must keep current on your car payments. If you are behind on your payments when you file, you can pay off the arrearage through your Chapter 13 repayment plan.

Chapter 13 also provides a means to reduce your car loan in certain circumstances . To learn more about this, see Can You Reduce Your Car Loan in Bankruptcy?

Chapter 7 Options When You Have A Car Loan

You have a few other considerations that you’ll have to make if you financed the vehicle and are still making payments. First, you likely pledged the car as collateral when you took out the loan, making the loan a secured debt.

If you don’t pay the loan as agreed, the lender’s security interest, or lien, allows the lender to repossess the vehicle. 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.

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. If you can’t work out a deal with the lender, you’ll lose it to repossession.

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.

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How To Get A Chapter 7 Bankruptcy Car Loan

If youre in the process of deciding you need to file a Chapter 7 bankruptcy in order to get relief from large amounts of debt, what should you do if you also realize you need to get a different car? Maybe your current situation has made you realize the car youre driving now is more expensive than you can afford. Or maybe your current vehicle needs too many expensive repairs or just died altogether. Whatever the reason may be, the combination of needing a car and needing to file bankruptcy can feel overwhelming. But dont worry, you may be able to get a Chapter 7 bankruptcy car loan to get the vehicle you need even while getting a fresh start through bankruptcy. Heres how to do it in just 7 steps:

What You Can Do To Plan For Bankruptcy

Keep Your Car With Chapter 7 Bankruptcy

First and foremost, the best thing you can do to plan for bankruptcy is start looking around for a reputable bankruptcy attorney who can help you determine if bankruptcy is the right option for you, what type of bankruptcy you should file , and what youll need to do file. See our previous article on Choosing a Bankruptcy Lawyer and be sure to check out our page of bankruptcy attorneys we trust in the greater San Diego area.

Its also helpful to know some of the main differences between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy in order to decide which one is right for you, although again your bankruptcy attorney will help you figure out which option is better for you. A Chapter 7 bankruptcy is where any significant non-exempt assets are sold off to pay back some portion of your qualifying debts, and what remains is entirely wiped away when the bankruptcy is discharged. A Chapter 13 bankruptcy is the kind where your debts are reorganized and/or reduced so you can get caught up over the course of a 3-5 year court-approved repayment plan. Because many of the bankruptcies that will be filed as a result of the pandemic-induced recession involve reduced income because of losing a job, the Chapter 7 option will likely be the most common type of bankruptcy filed. But again, follow the advice of a qualified, reputable bankruptcy attorney to help you choose which type of filing is right for your specific situation.

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Ease The Burden Today Schedule A Consultation

Are you wondering if you have a case? Our attorneys combined as a team have hundreds of years of experience dealing with all kinds of legal cases throughout Richmond, Harrisonburg, and all over Virginia. It is our goal to serve our clients with the utmost integrity, respect, and dignity regardless of your circumstances.

When you complete this contact form, youll be contacted by one of our representatives to get more details regarding your inquiry. Our firm is committed to representing our clients rights to ensure you receive the most favorable results possible.

As with many legal issues, minutes matter. The evidence fades, witnesses disappear, and the stories change. If youre facing an urgent legal matter, Cravens & Noll can provide hope to your situation.

How The Current Recession Is Unique And Devastating

Back in June a World Bank report spelled out how this recession is different from all others. Its the first global recession every caused solely by a pandemic. The overall global economy is expected to shrink by 5.2% in 2020, which is the worst decline since WWIIs devastating impact on the global economy. It also hit faster and harder than any previous recession. For all intents and purposes, national economies literally shut down overnight in a wave that went all around the world. And in spite of everyones best efforts, theres no end in sight until safe, effective vaccines or treatments become widely available.

For the US, the National Association for Business Economics sees a very slow recovery. Economists are saying that GDP wont get back to its pre-COVID level until at least 2022 or even 2023, and same goes for job growth reaching pre-pandemic levels. In fact, many believe that as many as 40% of pandemic business closures will become permanent. According to the Bureau of Labor Statistics, unemployment spiked up to 14.7% in April, and although its been falling since then down to 8.4% in July, theres still a long way to go to get back to the 3.5% unemployment rate we had in February before the pandemic hit, and economists are saying its going to take years to fully recover.

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Determining The Value Of Your Car

You will need to provide the value of your car, as well as other assets, when you are filing under Chapter 7. This is the fair market value of the car, rather than the amount that you paid for it or the amount owed on a loan. The fair market value is defined as the cost of a car that is similar in its age and condition to your car. You can determine its base value by referring to industry standards, but you also will want to consider any additional factors that might reduce the value of your car. If you are claiming that your cars value is very different from what industry standards would suggest, you may need to provide evidence of the difference. Cars that are unique or likely to have a very high value may require assistance from a licensed appraiser.

Consult Your Bankruptcy Attorney

How To Keep Your Car After Bankruptcy At A Price You Can ...

Most people need the help of a qualified bankruptcy attorney to do the filing. You should feel free to reach out to your bankruptcy attorney and get their advice if you have to replace your current vehicle. Your attorney may know of a reputable lender you can work with in your area.

If youre looking for a bankruptcy attorney because you havent filed yet, visit the Day One Attorneys page for our recommendations on who you can work with.

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How To Redeem A Car In Chapter 7

There are some steps you should take if you decide to redeem your car:

  • Determine how much your vehicle is worth. Two good places to look are NADA and Kelley Blue Book.
  • Compare the value of your car with the amount your lender says you owe. If the value is significantly lower, it might be worth your while to pay off the loan or apply for redemption financing.
  • Talk with your bankruptcy attorney about whether it is feasible for you to redeem your vehicle.
  • Once you apply for financing, your attorney may have to do some negotiating with the original lender about the vehicle’s value.
  • Once youve come to terms with the lender, your attorney will prepare and file a Motion to Redeem with the court. The bankruptcy judge must approve the redemption.
  • Once the court approves the redemption, the new lender will pay the old lender .

Since the new loan was made after you filed bankruptcy, the new loan is not subject to the bankruptcy ruling. If you fail to make the payments as agreed, the redemption lender will have the rights available under its security agreement and state law to either repossess or force payment.

What Happens To Your Car In Chapter 7 Bankruptcy

Filing for Chapter 7 bankruptcy can clear some unsecured debts, but it may also require selling or giving up some assets to pay debts. The items that are exempt from liquidation, and the value that can be exempted, varies by state.

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 vehicleas long as you’re current on your loan payments. And if the market value of a vehicle you own outright is less than the exemption amount, you’re in the clear.

To determine how much equity you have in the vehicle, subtract your current loan balance from the car’s value. Because vehicles tend to depreciate in value fairly quickly, you may not have much equity unless you’re nearing the end of your loan term.

Once you’ve determined how much equity you have in your vehicle, take a look at what the motor vehicle exemption is in your state. If you have less equity than the exemption limit, the car is protected. For example, if your state’s exemption limit is $4,000 and you have $3,500 in equity in your vehicle, you can keep it.

If the equity in your car exceeds the exemption limit, a few different things can happen.

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Finding An Auto Loan After Chapter 7 Bankruptcy

If you’ve recently been discharged from Chapter 7 bankruptcy and need a car, Auto Credit Express can help. We understand that your credit may not be in the best shape, but financing options are still available.

In fact, we can match you with a local dealership that has connections with special finance lenders. These lenders are able to work with unique credit situations. And the good news is that our service is free and comes with no obligations. So, go ahead and fill out our simple and secure auto loan request to get started today.

What Is The Colorado Vehicle Exemption

Redeeming a Car in a Chapter 7 Bankruptcy

The Colorado vehicle exemption allows you to keep up to $7,500 in equity in any vehicles you own. So, if your car is worth $12,000 and you owe $10,000, you have $2,000 in equity, which will be entirely protected by the Colorado vehicle exemption. If you file a joint petition with your spouse, the exemption amount is doubled. If you use your vehicle for work , we might be able to apply the Colorado tools of the trade exemption, which allows you to protect up to $30,000 in tools you use to earn a living.

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You Must Pay The Car Loan To Keep The Car

When you take out a loan to buy a car, you give the lender a security interestor a lienin the vehicle. The lien allows the lender to take the vehicle to satisfy the debt if you stop paying on it.

Filing for Chapter 7 bankruptcy wipes out the contract that obligates you to pay the car lender, but the lien remains. So once the bankruptcy case is over and the automatic stay lifts , the lender will be able to repossess the car. Also, a lender that wants the car sooner can file a motion asking the court to lift the automatic stay while the case remains active.

Because of these rules, if you want to keep the car, you’ll need to make arrangements to continue paying for it.

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