Can I Keep My Car If I File For Bankruptcy?
Understanding how bankruptcy impacts ownership of your car, truck or motorcycle will help you understand the answer to this common question.
Keeping Your Vehicle With Chapter 7 Bankruptcy
TO DETERMINE IF CARS, TRUCKS, BOATS, OR MOTORCYCLES are protected in a chapter 7 bankruptcy, a person must consider two separate and distinct issues.
EQUITY CONCERNS allow a person up to $3,675 of equity in any one vehicle. A person can keep as many cars, trucks, or motorcycles that the person owns, as long as none of these vehicles has any equity.
However, if an automobile has equity a person can only protect one such vehicle in a chapter 7 bankruptcy as long as the equity in the item does not exceed the $3,675 allowance. Equity is determined by taking the average book value and subtracting from it any car loans from the property. For instance, if the vehicle is worth $10,000 with an outstanding loan in the amount of $7,000, the vehicle would have $3,000 of equity and could be protected.
PAYMENT PROBLEMS on a car, truck, or motorcycle when filing bankruptcy require you to decide if you want to continue to pay for the vehicle and keep it, or stop paying for the vehicle and surrender it back without being responsible for the debt.
If you want to retain the vehicle, you have two options: Redemption or Reaffirmation. To reaffirm the obligation, you and the creditor must agree that payments will continue to be made and you will get to retain the vehicle. In most circumstances, if you are not current on the obligation, the creditor will not allow you to reaffirm the debt and retain the vehicle. If you own a lot more than the vehicle is worth, you may be able to redeem the property through payment of what the vehicle is worth rather than what is owed.
In order to redeem, payment in full of the current value must be made in one payment. This costly transaction can be financed through companies that provide redemption loans to individuals filing for chapter 7 bankruptcy that want to keep their car, truck, or motorcycle.
Keeping Your Vehicle With Chapter 13 Bankruptcy
CHAPTER 13 BANKRUPTCY considerations are very different when it comes to being able to retain or keep your car, truck, or motorcycle. In chapter 13 your vehicle will not be lost to the court if your equity is too high.
Having equity above the allowable amount will only impact the monthly payment of your chapter 13 plan. If you are behind on payments, you will not be forced to surrender your vehicle through the bankruptcy, but can make up these missed payments through your chapter 13 plan in order to retain your vehicle.
Chapter 13 is a great option for a person that wants to keep a vehicle but either has too much equity and/or is not current on the payments. Under a chapter 7 these issues would result in loss of the car, truck, or motorcycle, but in a chapter 13 the vehicle can be retained.
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