Love Your Car? Here Is How You Can Protect It from Bankruptcy

If you are contemplating bankruptcy, you may be concerned about the impact on your vehicle. Occasionally, the court may order you to surrender your vehicle to the trustee.

Purchasing a vehicle is one of the most expensive actions we take. It may be the most expensive item we ever buy. We pay for insurance, maintenance, gas, and other car-related expenses. It may be your only mode of transportation, so it makes sense to preserve it when you file for bankruptcy.

What Happens When You File for Bankruptcy?

Bankruptcy law helps individuals in escaping debt legally and start afresh. Nevertheless, this is only sometimes achievable by sacrificing something.

When declaring bankruptcy, your assets are transferred to a trustee. This trustee will ensure that all non-exempt assets can be liquidated via auction. After they are sold, the proceeds are divided among the creditors according to a predetermined formula.

If your car is collateral for other debts and you have unsettled payments, you may be allowed to file for Chapter 7 or Chapter 13 bankruptcy. 

Hiring competent bankruptcy lawyers can prevent the repossession of your car. Bankruptcy lawyers have experience handling these types of cases and can help you protect your car from going into bankruptcy proceedings.

How to Protect Your Car through Chapter 7 Bankruptcy

Under Chapter 7 bankruptcy, if the car is worth more than the current exemption limit, it will most likely be repossessed and sold at auction by the trustee. 

However, there are some exceptions to this rule that you can make to protect your car. If the fair market value of a car you own outright is less than the exemption limit, you’ll be allowed to keep it, pay the remainder of the loan and use it as you see fit.

The equity in your car is the market value of your vehicle minus any loan or lease payments owed on it. Since cars get older, their values decrease because they are less likely to sell quickly, and you might only have a little equity if you aren’t getting close to the end of your loan term.

If you claim an exemption to protect your car during a bankruptcy proceeding and the value exceeds that limit, here’s what will happen:

  • The trustee may sell off your car to get the money to pay back creditors, distribute the amount you are entitled to keep to you and use the remaining proceeds to resolve your case. They may allow you to keep the vehicle if you can pay off the equity at a discount.
  • The lender might repossess the vehicle if you stay caught up on your auto loan payments. The exemption does not apply to a car if the loan tied to it is delinquent. But you could keep and protect your car with two options.

Redemption: It is repaying your car loan to the creditor for its current fair market value. If you can afford this, this could make your life easier because you won’t have to pay for an automobile.

Reaffirmation: In reaffirming your debt, you commit a second time to continue paying payments according to a schedule you and your creditor have established, which may include modified loan terms.

How Long Do Chapter 7 Bankruptcies Last?

Bankruptcy Chapter 7 is a process that can take 4 to 6 months for the case to be completed and discharged. 

The length of time depends on whether you have assets that must be liquidated and sold. If there are no assets, the discharge will be granted within 30 days of filing. However, if assets need to be liquidated, it may take longer than 30 days.

How to Protect Your Car Through Chapter 13 Bankruptcy

Bankruptcy Chapter 13 bankruptcy allows consumers to start fresh from their debts. Chapter 13 allows debtors to keep certain assets by reorganizing their finances. Here are three options to help you keep your car through bankruptcy Chapter 13:

1. Create a Payment Plan

The court will ask you to create a payment plan that covers all your debts and household expenses, including your mortgage.

It allows you to pay off your debts to protect your car in three or five years without having to sell assets or go through a foreclosure on your home. Moreover, if you need to catch up and make future payments on time, you will be obliged to catch up and make future payments on time.

2. Revise the Loan’s Terms

If a loan can protect your car, the lender will likely require you to enter a new loan agreement. The lender can agree to extend the term of your loan and lower your monthly payments. You’ll have a longer repayment period, but the interest rate will likely be lower. 

3. Reduce the Loan Balance

Modifying vehicle loan conditions within Chapter 13 may also involve a “cramdown .” Cramdown means that your lender agrees to reduce the amount owed on a vehicle to its current market value. With this setup, the timeline of your automobile purchase is a significant aspect.

If you bought your car within 910 days of filing for bankruptcy, you must pay the whole loan amount, but your interest rate may decrease.

If you bought your car more than 910 days before filing for bankruptcy, you only have to pay back the car’s fair market value when you filed.

How Long Do Bankruptcies Chapter 13 Last?

Bankruptcy Chapter 13 is usually three to five years in length. The length of the plan will depend on the amount of money you owe and how much income you earn.

Final Thoughts

Suppose you are contemplating bankruptcy and possess essential assets, including a vehicle. In certain situations, keeping your car is necessary since it could be your only vehicle or the sole means of transportation.

Most people want to keep their vehicle when filing for bankruptcy. This is why you need to hire a lawyer who is Experienced Chapter 13 bankruptcy attorney in such cases and can advocate for your best interests.

A competent attorney will outline your legal alternatives and walk you through the ramifications of bankruptcy on your assets and other financial life.