Negotiating A Reaffirmation Agreement
If you can afford to make the payments and are sure that reaffirming the car loan is your best option, you will make this known on your bankruptcy filing statement. The lender will then send you an agreement that may be the same as or similar to your original loan contract. At this point, you may be able to negotiate a better deal.
The lender knows that you have the option to surrender the car and assume no liability. This will usually cause them to lose money, so it is in their best interest to negotiate. Ideally, you will want to request that the principal of the loan be reduced to the vehicles current value. If the lender will not agree to this, you might want to give up the car and let the bankruptcy eliminate your liability.
How To Protect Your Car In Bankruptcy
The best way to protect your car regardless of the type of bankruptcy that you choose is to own it outright. This frees you from the additional burden of needing to worry about your loan or lease status.
Regardless of your cars status, the best way to protect it is through an exemption. A federal exemption currently allows you to keep your car if the value is under $4,450 a figure that will remain in place until 2025. Some states also offer exemptions including ones that are more generous and may even offer you the option to combine exemptions.
As long as the value of your car is under the exemption amount, you can claim the exemption and keep your car. Youll have to keep up payments if you still owe them or risk having your car repossessed by your lender, but it will keep you from being obligated to liquidate the car as an asset to pay down your debt.
Keep Your Car In Bankruptcy Chapter 13
You dont need to be current on your car loan to keep your car in chapter 13. In fact, chapter 13 is often used to stop repossession and give you time to catch up missed payments. Creditors cannot refuse to accept payment on the car loan if you file chapter 13. If you get behind on your car, and the creditor wont work with you, threatening repossession unless you come up with all the missed payments at once, chapter 13 can help.
In chapter 13, you can cram down some car loans. This is not possible in chapter 7. In a cram down, you pay the value of the car, not what is owed, over the term of the chapter 13 plan. The interest rate will change as well. in 2020, the current interest rate is 5.5% So, of you owe a lot more on your car than what it is worth, and at a higher interest rate, chapter 13 may be an option. To cram down a car, you must have purchased it more than 910 days before you file your bankruptcy .
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Can You Keep Your Car If You File For Chapter 13
In Chapter 13 bankruptcy, you are allowed to keep all of your property including your nonexempt assets. The Chapter 13 trustee does not sell your property to pay your creditors. In return, you pay back a certain amount of your debts through a repayment plan. This means you can keep your car. However, if your car has nonexempt equity, you must pay your unsecured creditors an amount equal to the nonexempt portion through your plan.
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Motion To Redeem Your Car In Bankruptcy
Another way to save your car during bankruptcy is by making a motion to redeem your vehicle. Redeeming your vehicle allows you to purchase it from your lender for its retail value at the time you file. The value that matters is the value of the vehicle at the time you file for bankruptcy. Its likely a lower amount than when you purchased the vehicle.
To redeem your car, you make a motion to the court as part of the bankruptcy proceeding. You must present evidence of the value of the car. Most courts want to see information from Kelley Blue Book or the National Auto Dealers Association. You must also show that you want to keep the vehicle for personal or household use. You must serve a copy of the motion on the car lender.
If the court approves your motion to redeem your car, your car lender must accept a lump sum payment for the value of the car. In the end, you end up with title to the vehicle free and clear. To redeem your car, you must have the funds available to pay your lender for the fair market value of your car. A motion to redeem may be your best bet when your vehicle is worth less than your loan.
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You Have Other Options When You Have Car Loans
If you have an existing car loan, there are different options you can look into if you decide to keep or let go of your car after your bankruptcy filing.
1. Surrender the Car
If you cannot afford to pay your car loan, you can give back your car, which will wipe out your liability. The lender may wait for your bankruptcy filing before repossessing the car. However, they may also file a motion to the court to lift the automatic stay and get your car as soon as possible.
2. Reaffirm Your Car Loan
If you have a car loan and your equity is lower than your states Motor Vehicle Exemption, you can reaffirm your car loan. You will enter in an agreement with your creditor that you will continue paying your car loan. But you will also have to prove to the court that you can do so.
3. Sell Your Car
If your equity is much higher than what is exempted, the trustee may decide to sell your car. The proceeds will be used to pay your debts and youll get the $4,000 exempted amount.
4. Pay for the Remaining Amount
If the remaining amount after the exemption is not that high, you can pay for the remaining amount and keep your car.
5. Redeem the Car
When you owe more than what your car is worth in the market, you can redeem the car so that you can keep it. Youll have to pay the lender the lump sum of what the cars current value is.
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What Happens To Your Car Loan If You File For Bankruptcy
Technically, nothing should happen to your car loan if you file for bankruptcy as long as you continue to make your monthly payments.
A creditor will not repossess your vehicle just because youve filed for bankruptcy. The Bankruptcy & Insolvency Act prohibits that action. As long as you can maintain your regular payments, you can maintain your possession of the vehicle.
That said, there are some exceptions:
- You will not regain your vehicle if the creditor repossessed it before you filed for personal bankruptcy.
- You will lose the vehicle if the creditor gave you notice that they intended to repossess it at least ten days before you filed for bankruptcy.
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How To Use The Can You Keep Your Car In Chapter 7 Bankruptcy Chart
Do you have your figures? Great! You’re ready to use the chart. But first, take a second to notice that you’ll lose your car in Chapter 7 bankruptcy when:
- you can’t protect the equity, or
- you’re behind on your car payment.
The reason in both situations is essentially the same.
Chapter 7 is quick and wipes out qualifying debts in about four months without requiring you to pay anything to creditors. Because it’s quick, you won’t have time to catch up on your car payment or pay to keep a car with a lot of nonexempt equity. That’s what Chapter 13 bankruptcy is forit lets you fix these problems using the three- to five-year Chapter 13 payment plan.
In Chapter 7, the trustee will sell your car if you can’t protect the equity and give you the exemption amount. And if you’re not current on the car loan when you file for Chapter 7, the lender will use its lien rights to get it back by either:
- asking the bankruptcy court to lift the automatic stay that stops collections so the lender can repossess the car during bankruptcy, or
- waiting until the bankruptcy case ends to repossess the vehicle.
Now that you understand the elements, check the chart. You’ll learn more about redemption below.
Dont Put Your Car In Limbo When You File For Bankruptcy
Owning a car plays a big role in your financial health. Without a car, it may be difficult to go to a job interview or pick up your kids and or buy groceries. The last thing you need to worry about is losing this important resource when you file for bankruptcy.
Going bankrupt can be complicated, so its important to be well informed of the specifics. After all, the kind of bankruptcy you enter into determines the status of assets like your car.
If youre filing for bankruptcy and want to keep your car, then you should call Husker Law in Omaha at . We have the experience and knowledge you need to keep your car!
Please Note: We can only provide legal advice to residents of the State of Nebraska.
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Keeping A Car Thats Not Paid Off
First, if youâre close to having it paid off, there is a good chance you have at least a little bit of equity in the car. In this context, equity is calculated by subtracting the current loan balance from the carâs value. As long as the equity is less than the exemption amount , your bankruptcy trustee canât touch your car.
About your car loan
Chapter 7 bankruptcy is not a way to get a free car. If youâre still making payments on a car loan, you havenât paid for your car yet and the only way to keep the car is to pay for it.
Redeem the car by paying only how much itâs actually worth
One way to do this is through a redemption, where you pay for the car’s current value in a single payment, no matter how much you owe. If that sounds like an option for you, here’s where you can learn more about how to redeem your car.
Is paying a lump sum to redeem your car not possible? You have other options!
If you’re like most, you probably don’t have access to that kind of money right after your bankruptcy filing. That is where reaffirmation agreements come in.
Reaffirmation Agreement Basics
A reaffirmation agreement allows a bankruptcy filer to keep their car by preventing the car loan from being discharged. They exist, in large part, to protect banks and credit unions after a Chapter 7 bankruptcy. Here are some details about the process of reaffirming a car loan.
If you were facing repossession, a reaffirmation may not be the way to go
Keep the car, keep the debt
Reaffirmation Provides Certainty Against Repossession
If you dont sign a reaffirmation agreement, the lender can repossess your car after your case closes and the automatic stay lifts. Some car lenders are known to repossess the car immediately, even if you are current on payments. Other policies differ, but in all cases, you should expect a repossession if you miss a payment. Reaffirming your car loan will provide certainty against the lender repossessing your car as long as you keep current with your payments.
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What Effect Will Bankruptcy Have On My Job And Future Employment
According to CareerBuilders survey, 29 percent of employers conduct credit checks on job applicants. Declaring bankruptcy can affect your ability to find a job, especially if you are in the financial sector or work for a government agency.
This is done primarily to ensure you are a good match for the job, such as handling money. It also helps ensure you are not stressed financially, increasing your chances of fraud or theft.
Your bankruptcy will not be revealed if an employer does a routine background check.
Employers are less likely to conduct background checks on employees. If you dont plan to change jobs, there is no reason to worry about a bankruptcy affecting your employment.
When You Lease Your Vehicle:
The same thing will happen with a leased car during a bankruptcy. As long as you can make your payments during the bankruptcy process, you can maintain your access to the vehicle.
Still, you may want to ask yourself if financing/leasing the vehicle is the best idea when youre in a financially precarious situation. Remember, youre not just making monthly payments to the creditor. Youre paying for insurance, gas, parking and much more to use a vehicle on a regular basis. Ask yourself if this financial commitment is essential. Is it possible for you to live without a vehicle to save some money?
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A Boerne Tx Bankruptcy Attorney Can Help You Keep Your Vehicle
If you are filing for a Texas bankruptcy and you are concerned about whether or not you will be able to keep your vehicle, the best thing to do is to contact a knowledgeable . At the Law Offices of Chance M. McGhee, we can help you understand your rights when it comes to bankruptcy exemptions and your vehicle. Call our office today at 210-342-3400 to schedule a free consultation.
Arlington Heights Bankruptcy Lawyers Warn Filers
Because such reaffirmations can pose risks to the filer, courts must review the terms before they enforce the agreements. If the judge approves the agreement, then it goes into force, and the filer must follow its terms until they pay off the car. If the judge denies it because they feel that the terms are not in the filer’s best interest, then the filer may still get to keep their car.
For more information about how bankruptcy will affect your property, please contact Newland & Newland today. We provide support to clients in Lake County, McHenry County, Cook County, DuPage County, Crystal Lake, Arlington Heights, Barrington, Palatine, Rolling Meadows and throughout Northern Illinois.
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Alternatives To Declaring Bankruptcyhow To Find Out More & What Might Be Available To You
Most of the time when someone is experiencing financial difficulty, they think that if things dont improve theyll have to go bankrupt. The truth is that between financial difficulty and bankruptcy there are a lot of options. Our credit counsellors are experts at helping people explore these options and find the solution that will not only work the best for you today but will put you on the path to achieve you future goals.
For some people, bankruptcy can prevent them from achieving future goals including some career paths. The nice thing is that there are often other options sometimes lots of them it all depends on your situation. The best thing you can do is make an appointment to speak with a credit counsellor, go over your situation with them, and see what your options are. If it turns out that bankruptcy is your best option, theyll layout your next steps for you and refer you to a reputable trustee.
Were a non-profit service. So appointments with our credit counsellors are always free, non-judgmental, and completely confidential. , or chat with us online. You have nothing to lose.
Fortunately, for many people who feel this way, there are other less severe options. Speak with one of credit counsellors to learn all your options. Theyll be happy to carefully review your whole financial situation with you and answer any questions you may have. Speaking with our certified counsellors is always free, confidential and without any obligation. Were here to help.
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Negotiating With The Trustee
Most Chapter 7 bankruptcy cases are what is called no-asset cases, which means everything the filer owns is protected through bankruptcy exemptions. Exemptions are specific to where cases are filed and vary by state law. Exempt property cant be taken from the filer.
Nonexempt property is not protected through Chapter 7 bankruptcy and can be taken by the trustee and sold to pay back your unsecured debt. If a bankruptcy filer wants to keep otherwise nonexempt property, they can usually pay the trustee the value of the property. This is generally an option because the creditors will ultimately get the same amount whether the nonexempt asset is sold by the trustee or is bought by the filer.
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Cars And Personal Bankruptcy
One of the popular myths about personal bankruptcy is that you lose everything you own. That is not true. When filing for bankruptcy, you can expect a licensed insolvency trustee to collect some of your assets and sell them in an effort to repay creditors what theyre owed. One of the assets that a LIT could sell during the bankruptcy process is your vehicle.
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