One of the foremost thoughts within the minds of the many people who will file for bankruptcy is whether they will keep their cars. For, the overwhelming majority of people owning a car is an absolute necessity. Then the majority of the people who file for bankruptcy need to keep their cars.
As with most people, when you are dealing with the federal courts, as you are when filing for bankruptcy, you need an attorney on your side. However, it is noteworthy for everyone who has a financial problem in bankruptcy cases searching how to file chapter 7 with no money, carefully follow this step. And, once you file either a Chapter 7 straight bankruptcy or a Chapter 13 payment plan case, you will be able to keep your vehicle. If following the below steps, you can keep your car-
Keeping Your Car in Chapter 7 Bankruptcy
In Chapter 7, it discharges most of your debts (canceled). In return, you need to hand over the nonexempt property — the bankruptcy trustee sells the property and uses the issue to pay your unsecured creditors.
Whether you’ll keep your car in Chapter 7 depends on-
- Whether your equity is exempt
- Whether you’re behind in payments
Is Your Car Equity Exempt?
Each state permits bankruptcy filers to stay certain sorts of property up to a precise dollar limit. Most states give some car exemption. the amount exempted varies staggeringly it may well be as very little as $500 or they outfit the maximum amount as several thousand dollars and sometimes weigh more for a disabled driver.
If your equity within the car (your equity is that the market price of your automotive minus your automotive loan) is considerably over the applicable car exemption amount, the trustee might sell your car, provide you with your exempt portion, and use the remaining issue to pay your unsecured creditors.
In this scenario, however, you will use another exemption like wildcard exemption to form up the distinction, get the trustee to simply accept other nonexempt property reciprocally for keeping your car, or pay the trustee the amount of the non-exempt equity of your automobile.
Are You Behind on Your Car Payments?
If you’re behind on your automobile payments, you may lose your car in Chapter 7 bankruptcy (even if your equity is exempt) unless you are taking care of the arrearage or get the lender to comply with another payment arrangement. Some Choices Include:
Redeeming the Property
In Chapter 7 bankruptcy, you’ll “redeem” a car by paying the lender this replacement worth of the automobile. You’ll solely try this if the car is exempt, or the trustee has “abandoned” the property (decided to not sell it). Because this requires a lump-sum payment, however, it’s typically not viable for individuals considering bankruptcy.
Your first option in a very Chapter 7 case is to enter a reaffirmation agreement along with your automobile lender. If you own your automobile free and clear, this feature doesn’t apply to you. A reaffirmation agreement implies that you contract with the lender to require the auto loan out of the bankruptcy altogether. It will not be subject to bankruptcy discharge. In exchange for keeping the car, continue making the payments. It conjointly implies that the lender may repossess the car and sue you for a deficiency judgment if you default on the loan.
Contact your automobile loaner if you would like to pursue a reaffirmation agreement. The bankruptcy courts should approve a reaffirmation agreement. Several bankruptcy courts take the position that a reaffirmation mustn’t be approved if the lender doesn’t cut back the rate of interest or the principal balance of the loan. You furthermore may have to be compelled to show that you will afford to make the payments. That may be tough to try if your bankruptcy paperwork shows you do not have enough income to cover the payment.
Motion to Redeem
In Chapter 7, you furthermore may have the option of buying your automobile outright from your lender at the retail price of the car at the time your bankruptcy is filed. this might be a decent possibility if the worth of your automobile is much less than the amount of your loan. To qualify for redemption, it should use the car for personal, family, or household use. You need to conjointly pay money for the car in one lump sum payment.
You must file a motion to redeem with the bankruptcy court in line with its rules of procedure, together with serving the motion on your car lender. you need to offer proof to the court of the present retail price of the automobile. If the court agrees, it’ll grant your motion and order the automobile lender to accept a lump sum payment. Upon payment, the investor can transfer the title, free and clear, to you. It will complicate filing a motion and that I suggest that you consult a bankruptcy lawyer if you’re considering this selection.
Pay and Drive
Pay and drive is a possibility that doesn’t lawfully exist any longer, at least technically. It eliminated this feature with an amendment to the Bankruptcy Code in 2005, but it remains viable for several people. If you are doing not redeem your automobile or enter into a reaffirmation agreement, you’ll be able to still make your monthly payments to your automobile lender. However, for bankruptcy discharge, you’re now not obligated to do so. As a result, and once you receive your discharge, the lender will, at any time, repossess your automobile, even though you’re making payments.
Very few lenders can do that as they’d like a continuous stream of payments, versus the chance of an occasional price for an auctioned repossessed vehicle. Simply ensure to keep your payments current!
Owned Free and Clear
If you own your vehicle free and beyond any lines, then you need to make certain to shield your car from the bankruptcy trustee. This needs claiming exemptions on Schedule C to hide the worth of the car. Any price of the car you are doing not claim as exempt; the trustee will ask for by selling your automobile and paying you your share. though you’d get a payment from the trustee, you’d lose your vehicle.
Keeping Your Car in Chapter 13 Bankruptcy
If you’ve got vital equity in your automobile or are behind in your car payments, it’s typically easier to stay in your car in Chapter 13 than in Chapter 7.
In Chapter 13 bankruptcy, you retain your property and pay back some debts fully and others partially through a three- or five-year repayment arrangement. If you would like to stay in your car in Chapter 13 bankruptcy, you need to keep current on your car payments. If you’re behind your payments after you file, you’ll be able to pay off the arrearage through your Chapter 13 repayment arrangement.
Chapter 13 additionally provides a way to cut back your car loan in sure circumstances (specifically, if your automobile is worth less than the amount of your loan).
Chapter 13 Repayment Plans
If you file Chapter 13, you’ll be able to continue making your payments in line with their terms; Otherwise, you add the payments into your payment arrangements. If you owe over the car is worth, or if your rate of interest is high, you’ll be able to alter the terms by paying solely what the car is worth and at the affordable rate of interest over the length of the arrangement, typically 3 to 5 years (5.5% sounds a great deal better than 18, does not it?). This is cram-down work, and it’s used each day to assist individuals such as you to keep their cars despite filing bankruptcy.