Can you keep your car if you file bankruptcy? That’s one of the very first question I usually get from a client. And usually the answer is yes.
In order to keep your car in bankruptcy, you’ll need to be current on the car. And your budget must reflect that you have the ability to make the car payment without it being a financial hardship.
However, there are many factors that affect whether or not you can keep your car in bankruptcy, including:
• How much your vehicle is worth,
• How much you owe on the vehicle, and
• How far behind you are on the payments at the time you file for Chapter 7 bankruptcy.
IF YOU’RE MAKING PAYMENTS FOR THE VEHICLE
Let me begin by talking to the people who have a loan and are making payments for their vehicle. You have three choices:
First, you can surrender or give back the car.
You need to be honest with yourself and ask if it is in your financial best interest to keep your car or truck.
• Can you really afford the vehicle?
• Will your financial situation make it difficult for you to make the payments each month?
• Do you have equity in the vehicle or are you upside down owing more than the vehicle is worth?
If you can’t afford the payments, or you owe significantly more than your vehicle is worth, Chapter 7 bankruptcy will allow you to surrender or give back your vehicle and walk away without owing another penny. That can be a good deal for many people who are in a bind regarding their car or truck. Then you get something to drive that you can really afford. It may be just a “beater” but that’s fine if it will get you back and forth to where you need to go until you can save up for something better.
Second, you can redeem the car.
Redemption is the process of buying your car back from the bank/credit union/finance company for the fair market value of the car. Did you get that? Buying back for what the vehicle is really worth as opposed to what you owe for it. If you are substantially upside down, redemption can be a terrific deal.
Problem is . . . Just about everyone who file a Chapter 7 bankruptcy doesn’t have any extra cash sitting around. So it may be a good deal, but this option isn’t available to you if you don’t have any funds.
Third, you can reaffirm the car loan.
This is what the vast majority of people do.
Reaffirmation is the renewal of a loan between a lender and a borrower. This means that if you sign a Reaffirmation Agreement, the bankruptcy will not discharge or wipe-out the vehicle loan. You would still owe that money to your vehicle lender and should you not be able to pay in the future, your lender would be able to pursue all legal methods of collecting that debt. So think it through before you do this.
Realize that in a reaffirmation agreement the lender is not likely to lower the monthly payments or the loan balance.
In order to reaffirm your car loan, you will need to be current on the car. And your budget must reflect that you have the ability to make the car payment without it being a financial hardship.
To find out more about reaffirmation agreements, Read This >
And Read This >
IF YOU LEASE YOUR VEHICLE
If you are current on your lease payments, then you may assume the lease and continue with your contract if you choose. If the lease payments are too high, then you may wish to reject the lease and turn the car back into the dealership.
Also, you would want to take into consideration whether you are coming to the end of the lease and you would be due for a big payment for excess mileage, etc.
IF YOU DON’T OWE MONEY ON YOUR VEHICLE
If you own your car or truck outright, meaning there is no loan on the vehicle, then in California you can keep your car in bankruptcy with no problem if it is worth no more than the allowed exemption value.
California has two sets of exemptions. When you file for Chapter 7 bankruptcy you must choose to claim the exemptions under CCP section 704 or the exemptions under CCP section 703.
- The auto exemption under CCP 704 = $3,350
- The auto exemption under CCP 703 = $5,850
Additionally, there is a wild card (catch all) exemption under CCP 703 which is worth just under $30,000 which can be used to keep your vehicle if it is worth more than $5,850.
Does this sound confusing? Let me say this: In over 30 years of practicing bankruptcy law, I can easily count on one hand the number of times my client lost his vehicle. So calm down, and talk with me about your particular financial situation.
Each bankruptcy case is different, so the decision whether to keep your car in bankruptcy or return a vehicle must be made on a case-by-case basis.
Perhaps you have some questions. You can reach my by phone at 760-523-9090. Or just click on the ORANGE “Contact Me” button at the top of your screen. I’ll contact you back and make arrangements to meet with you.
Talk with me. I’ll treat you like a friend.