How to Keep Your Car In Bankruptcy
How to Keep Your Car in Bankruptcy
You can keep your car in bankruptcy. Most people do, but many actually improve their situation. The fear of losing your car is understandable. Without a car, you can’t keep your job and pay your bills. But, sometimes it makes sense to look at other car options, either before, or after you file bankruptcy. You have options you may not be aware of. And, you might end up with a better car than you now have, and may even pay less!
Keep Your car in Bankruptcy Chapter 7
Most people keep their car in chapter 7. If you owe money on the car, you normally will reaffirm the car loan, and continue to pay it. This takes the car debt out of the bankruptcy discharge. If you later fall behind on the debt, the creditor can repossess the car, and you will owe the debt. Reaffirming the car loan reinstates all of your obligations on the debt. The amount due, the interest rate, and monthly payment will not change.
Strangely, car creditors actually seem to like it when you file bankruptcy and reaffirm the car debt. They figure you got rid of your other bills, so you’ll be in a better position to keep your car loan paid on time. Creditor normally require that you be current on your car loan before they will agree to let you reaffirm. Sometimes its better to buy a new car than to keep your car in bankruptcy.
There is another option to keep your car in bankruptcy in chapter 7. This is a redemption. This allows you to pay the value of the car, and the amount owed in excess of the car’s value is discharged. The problem with this option is that the value must be paid in a lump-sum payment. Often this is not possible for a consumer to do. There are companies that finance these redemption transactions. This is a great way to keep your car in bankruptcy, and pay less than what you owe on it. This also solves the cross-collateral problem if your loan is with a credit union.
Keep Your Car in Bankruptcy Chapter 13
You don’t need to be current on your car loan to keep your car in chapter 13. In fact, chapter 13 is often used to stop repossession and give you time to catch up missed payments. Creditors cannot refuse to accept payment on the car loan if you file chapter 13. If you get behind on your car, and the creditor won’t work with you, threatening repossession unless you come up with all the missed payments at once, chapter 13 can help.
In chapter 13, you can cram down some car loans. This is not possible in chapter 7. In a cram down, you pay the value of the car, not what is owed, over the term of the chapter 13 plan. The interest rate will change as well. in 2020, the current interest rate is 5.5% So, of you owe a lot more on your car than what it is worth, and at a higher interest rate, chapter 13 may be an option. To cram down a car, you must have purchased it more than 910 days before you file your bankruptcy (about 2.5 years).
Keeping Two Cars in Bankruptcy
You are not limited to one car. You can have two (or more) and still file bankruptcy. There is no specific limitation on the number of cars a person may own and keep in bankruptcy. However, there are other limitations that do come into play. The law limits the amount of equity a person can protect. You may protect up to $4,000 equity in one vehicle. This is a “per person” limitation, and only applies to one vehicle.
For example, if you own one car free and clear and it is worth $4,000, you can protect it with your auto exemption. What if you own another car worth $10,000, but you owe $10,000 on it? It has no equity, and you could keep, and reaffirm it.
When you file bankruptcy to get rid of debt, you still need a car. Most people are relieved when I tell them they will keep their car. Some are thrilled when I advise them to get a different car BEFORE they file bankruptcy. No way around it, you have to have a dependable car. I’ll show you options which may shock and surprise you. At a free consultation, you will learn how to keep your car, and all your other property, while getting rid of your debt.
Keep your car in bankruptcy. Wipe out all your other debts, so you can afford to keep your car in bankruptcy.
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