Bankruptcy & Your Car: Drive Your Creditors Away While Still Driving Your Car
How Chapter 13 Bankruptcy May Help You Keep Your Car
If you're in danger of having your car repossessed as a result of falling behind on your monthly car payments – whether due to a sudden illness, job loss, medical emergency or another setback – you should understand how filing Chapter 13 bankruptcy may be able to help you keep your vehicle.
Under Chapter 13 bankruptcy, you agree to repay your past-due payments on your car payments over a three-to-five-year period in exchange for being able to keep your car.
As long as you satisfy the terms and conditions of your Chapter 13 repayment plan, you'll likely be able to keep your car
If you're concerned about your car or home, talk to a local bankruptcy attorney about your debt-relief options.
Simply fill out the below form or call 888-632-0587 and we’ll connect you with a local bankruptcy lawyer.
How Chapter 13 Bankruptcy May Help You Keep Your Car
Upon filing Chapter 13 bankruptcy, an automatic stay is entered by the bankruptcy court. This court order halts all collection actions against you, whether it’s repossession of your car, foreclosure on your home or some other means to collect on your secured debts (debts tied to an item or piece of property).
The automatic stay not only provides you breathing room from vehicle repossession but can also allow you and your bankruptcy lawyer to sit down and figure out a proposed repayment plan that must be submitted to the bankruptcy court within 15 days of filing your Chapter 13 bankruptcy petition.
If you fail to comply with your Chapter 13 repayment plan at any time, the bankruptcy court may lift the automatic stay, and repossession may proceed.
How Much Will You Have to Pay on Your Car in Chapter 13 Bankruptcy?
This is a very good question that is ultimately determined by when you bought your car.
You must repay your entire car loan if:
you bought your vehicle within 910 days of filing Chapter 13 bankruptcy. In other words if you owe $10,000 on a car loan that is only worth $5,000, you must pay back all $10,000 if the car was bought less than 910 days (30 months) before filing your Chapter 13 petition (also known as 910 claims in Chapter 13 bankruptcy). With that said, if you have to pay back your entire car loan, you may have a significantly reduced interest rate on it after filing Chapter 13.
You may be able to cram down the amount of money that you owe on your car if:
you bought your vehicle more than 910 days before filing Chapter 13 bankruptcy. At this point, you will have to pay back what your car is currently worth. So if you owed $10,000 on a car that is now worth $5,000 according to blue book value, you would be required to pay back $5,000 over the course of your Chapter 13 repayment plan.
Understanding the Value of Your Car
As you can see above, your vehicle’s value is an important thing to consider when seeking to keep your car in bankruptcy, whether it’s Chapter 13 or Chapter 7.
Generally speaking, you would not file Chapter 7 bankruptcy to keep your car. That’s what Chapter 13 bankruptcy is for.
However, if you were to file Chapter 7 bankruptcy (which is more suitable to people looking to discharge unsecured debts like credit cards, medical bills, payday loans, etc.), you may be wondering what would happen to your car.
What Happens to Your Car in Chapter 7 Bankruptcy?
Chapter 7 bankruptcy does not provide a discharge for secured debts like your car or home. If you wanted to discharge (eliminate) your car loan debt in Chapter 7, you would likely have to give up the car.
With that said, each state has its own bankruptcy exemptions that protect certain items from being sold off, or liquidated, during your Chapter 7 case. A vehicle is a common bankruptcy exemption throughout the 50 states. What this means is that most Chapter 7 bankruptcy petitioners may be able to keep their cars in Chapter 7.
Now if for some reason, you were going to lose your car in Chapter 7 bankruptcy (this could possibly happen to a vehicle like an antique car that is deemed not necessary to you), you may be able to work out a reaffirmation agreement with your creditors.
The reaffirmation agreement basically asserts that you agree to pay your creditors on the car in exchange for keeping it.
If you fail to make the payments on your reaffirmed car loan, the creditor can sue you for the deficiency balance and repossess the vehicle; thus reinforcing the importance of understanding what you’re doing when reaffirming your car.
Other options with your car in Chapter 7 bankruptcy include:
- Redeeming, or purchasing your car from the creditor by making a lump sum payment that is equal to the car’s fair market value. If you owed $10,000 on a car that is now worth $5,000, you could redeem the vehicle from the creditor by paying him $5,000. The remaining $5,000 would be eliminated as part of your Chapter 7 bankruptcy discharge.
- Surrendering your vehicle to your creditor if you ultimately determine that you can’t afford to keep it or if you owe more on it than it is worth.
With all this said, if you are in danger of losing your car to repossession and want to keep it, Chapter 13 bankruptcy protection is an option you may likely want to seek.
Examine Chapter 13 Protection for Your Car with a Local Bankruptcy Lawyer
It’s pretty hard to live without a car these days (despite how you may feel about rising gas prices). With that said, if you are in danger of having your car repossessed, you may want to speak with a local Chapter 13 bankruptcy lawyer about how Chapter 13 bankruptcy may be able to help you keep your car and catch up on your overdue loan payments over time.
At Bankruptcy.Me, we have made getting in touch with a nearby Chapter 13 bankruptcy attorney especially easy.
Utilize one of two quick and easy options: 1) fill out our free bankruptcy case review form or 2) call 888-632-0587, and we’ll connect you with a bankruptcy attorney in your area as soon as possible.
The above synopsis of bankruptcy laws is by no means all inclusive and is not intended to provide legal advice. These laws may have changed since our last update and there may additional laws that apply in your situation. For the latest information on these bankruptcy laws, please contact a bankruptcy lawyer in your area.
For more information on how filing Chapter 13 bankruptcy to stop vehicle repossession, visit our sister site, Chapter13.Me.