To give up a vehicle within a bankruptcy, individuals can choose to “surrender” their car. Surrendering a vehicle in a bankruptcy means that they can give up their car. Individuals who have fallen behind on their car payments have the option to get out of a car loan by filing bankruptcy and giving the vehicle back to the creditor. Surrendering a vehicle means that the individual will give back their car to the lender in exchange they won’t be liable for the debt since they are filing bankruptcy.
How Does Giving Up a Vehicle in a Bankruptcy Work?
To give up a vehicle in a bankruptcy, the attorney will contact the lender and tell them that you no longer want the vehicle. When you file for bankruptcy, an automatic stay goes into place. This stops the lender from being able to take back the car. The lender will have to file a motion with the court to lift the stay so that they can come and repossess the vehicle. Once the court allows the creditor to get the vehicle, the debtor has to work out a time and place for the lender to come and get it. Generally, this will take about a few weeks after the filing.
Can I keep My Car if I file for Bankruptcy?
Individuals who have a car and want to keep their vehicle can. In New York and New Jersey, the court allows an individual to keep a car as long as the equity is less than $4,450. There is also another exemption called the wildcard exemption. Individuals who have less assets can use this exemption to cover the remaining equity in a vehicle. Equity is the value of the vehicle minus the amount that is owed on the vehicle.
Generally, if the vehicle falls under an exemption, an individual can file bankruptcy and keep their car.
If I Surrender My vehicle in a bankruptcy, will I owe money?
Fortunately, no. Bankruptcy allows individuals to give the car back to the lender so that they won’t owe the remaining amount of debt.
What if I am Behind on Payments and Want to Keep My Car?
Bankruptcy offers individual’s a way to redeem a vehicle. A redemption in bankruptcy is where the debtor and the creditor negotiate with each other. If the creditor agrees, they will allow the debtor to pay the value of the vehicle. This is helpful for many people who owe more than what the loan is worth. For example, if a vehicle is worth $10,000 and a debtor has an outstanding loan of $14,000 a redemption would allow the individual to repay the value of the car- $14,000.
How will I know the value of my vehicle?
The bankruptcy courts in New York and New Jersey accept Kelly Blue Book valuations to determine the value of a vehicle. Therefore, once you have a figure of how much the value of the car is, that would be the amount that would need to be paid in a redemption. In some cases, the lender may have a different value. A good bankruptcy lawyer can try and negotiate with the lender to come up with a fair value of the car.
What if I don’t have the money to pay the value of the vehicle?
Recently, there have been redemption companies that lend individuals the money to buy out their vehicle. These redemption companies will give loans to individuals in bankruptcy to allow them to buy out their vehicle. Once this is done, a bankruptcy lawyer will need to file a motion with the court to allow you to redeem the vehicle. It is important to understand that since the new loan is taken after the bankruptcy filing, the individual will remain liable for the new loan even if they get a bankruptcy discharge.
What is a Reaffirmation?
In some cases, individuals who want to keep their vehicles will need to sign a reaffirmation agreement. A reaffirmation agreement is an agreement with the Lender stating that you are agreeing to be held liable for the debt even after the bankruptcy is filed. The agreement states that you will remain liable for the payments if you choose to keep your vehicle. These agreements are submitted to the court and the judge must sign off on it.
Should I sign a reaffirmation agreement in bankruptcy?
It is important to understand that reaffirming a debt is not always a good idea. The reason is that when you sign a reaffirmation agreement, you tell the bankruptcy court that you will continue to make these payments. Therefore, if you fall behind in the future, then you can be liable.
Generally, a lawyer should advise whether or not signing one is in your best interest. An individual who is filing bankruptcy should never sign a reaffirmation agreement if they won’t be able to keep up with future payments.
Keep in mind, that after filing a bankruptcy many lenders will not speak with the debtor. A bankruptcy lawyer can speak with the lender on your behalf to ensure that they will try and negotiate with you. A bankruptcy lawyer can explore what your best option is such as whether you want to maintain payments, sign a reaffirmation agreement, seek a redemption or surrender the vehicle.
Can I Purchase a Vehicle While I am in Chapter 7 Bankruptcy?
Yes, individuals can purchase a vehicle while in bankruptcy. However, lenders may not extend a loan while there is an open bankruptcy case. For many people, it is better to wait until the bankruptcy is over to apply for a new loan. Many people are surprised to learn that they can get a vehicle after filing bankruptcy. Generally, lenders will see that after filing bankruptcy an individual has no debt which makes them a good candidate to extend a loan. Moreover, you can’t file another bankruptcy for 8 years. Therefore, this makes you less of a risk than someone who has debt and hasn’t filed bankruptcy. One thing to keep in mind is that interest rates will likely be higher.
Karra L. Kingston Esq. is a bankruptcy lawyer in New York and New Jersey. We provide free consultations for individuals who are looking to give up their vehicle or file for bankruptcy and keep their vehicle.