Being riddled with debt can be very stressful. You may be considering bankruptcy but are hesitant because you are worried that if you file bankruptcy, your car will be taken away. This is a common concern especially, if it is your only means to get to work every day. Many individuals can file bankruptcy and keep their vehicle.
How Can I Keep My Vehicle
The Bankruptcy Court provides exemptions for individuals to keep some of their property when they file bankruptcy. One of those exemptions is the automobile exemption. The automobile exemption allows an individual to keep a car as long as there isn’t too much equity in their car. ( equity is the amount you owe minus any outstanding loans) If the vehicle falls under the exemption then you can keep the car.
Most people are able to file bankruptcy and keep their vehicles. Most of the time vehicles aren’t worth what you purchased the car for and typically, the outstanding loan is more than what the car is worth. Note, if you plan to keep the vehicle you will still be required to continue making your monthly payments. This means the debt won’t be wiped away.
If you want to know if you can file bankruptcy and keep your car it is important to speak with a bankruptcy lawyer who can review your financial situation to determine your vehicle falls under an exemption.
What If I am Behind on Car Payments?
When a person id behind on their car loan, the car lender can take the automobile. Once the lender takes the vehicle it becomes a repossession. Generally, a lender will only take a vehicle from you if you defaults on your car payments. When this happens the lender will take the car and sell the car at an auction to cover the remaining balance on the loan. When this happens, lenders will usually send borrowers a bill for the deficiency amount. Luckily, bankruptcy can wipe out any debt that outstanding from a repossession.
Often, people assume that since they gave up the car they are no longer liable for the debt. This isn’t true. Sometimes there is a deficiency amount that an individual can remain liable for. The deficiency amount is the balance on the loan after the car is sold at auction.
Redeem the Car
Individuals that file Chapter 7 bankruptcy can buy back the car from the lender or redeem the car. When an individual redeems the car from their auto lender, they pay the replacement value of the car. This is beneficial for people who owe more on their car loans than their car is worth. Instead of paying back the full loan on the vehicle, they can pay the actual value of the car.
Redeeming a car in bankruptcy is not an automatic right. The lender will have to agree to such terms. If you think you may want to redeem your vehicle, you may want to speak with a bankruptcy attorney about how to go about doing such.
Enter into a Reaffirmation Agreement
Individuals who file bankruptcy can enter into a reaffirmation agreement with their lender. A reaffirmation agreement is an agreement between the car owner and the lender where they mutually agree to new terms. Essentially, it is a new contract that both parties agree upon. Reaffirmation agreements provide individual’s a way to restructure their payments. Some lenders allow filers to tack the late payments to the end of the loan or restructure their monthly payments.
Once a reaffirmation agreement is filed with the Court it can not be revoked. Thus, filers must take the necessary steps to ensure they will remain current on their car payments. Individuals should always contact a bankruptcy lawyer before entering into a reaffirmation agreement.
Getting Back a Repossessed Car in a Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, individuals have more options to keep their vehicles. Chapter 13 bankruptcy, allows individuals to enter into a 3-5 year repayment plan. Individuals who are behind on their car payments can pay their arrears through the plan without worrying about their lenders coming after them. To enter into a Chapter 13 repayment plan, individuals will need to show the court that they can make their regular monthly payments and pay their arrears through the plan. This can get very expensive and it may not a good decision for individuals to save their car. Instead, they may be better off giving the vehicle up.
Should I Keep My Car and File Bankruptcy?
Individual’s considering bankruptcy to get back a repossessed vehicle should consider whether it makes financial sense to do so. Often, the vehicle is worth much less than the outstanding loan. Individuals who are struggling financially may be better off letting go of the vehicle. People can file bankruptcy to get rid of any outstanding balance on their car loan in a Chapter 7 bankruptcy and not be held responsible.
You should consider whether you will be able to continue to stay on top of your monthly payments, most people who are already struggling, can’t afford to keep making payments especially, when they are already behind.
If the car payments are high it may make more sense to give up the car and get a new car after the bankruptcy. Many people are under a misguided impression that filing bankruptcy will stop them from getting another car loan. This isn’t true. Most lenders are willing to extend loans to people who have a history of bankruptcy.
Speak with a Bankruptcy Lawyer
If you are considering bankruptcy and want to know if your car will be safe from creditors, give us a call today. We would be happy to review your financial situation and determine which chapter of bankruptcy is best for you. Our bankruptcy lawyers practice in New York and New Jersey. We help people get out of debt and start fresh debt-free. Give us a call today at 973-979-9078.