Can You Keep Your Car During Bankruptcy?
Yes, Chapter 13 bankruptcy allows you to file for bankruptcy without liquidating your assets, which means you can keep your car – and even save your home from foreclosure. Instead of liquidating your assets as you would in Chapter 7 bankruptcy, you can develop a 3-to-5-year repayment plan and use this time to regain control of your finances. A Chapter 13 bankruptcy is also called a wage earner’s plan.
Eligibility for Chapter 13 Bankruptcy
To file for Chapter 13 bankruptcy, you must have a regular income, less than $394,725 of unsecured debt (credit card bills, medical bills, etc.), and less than $1,184,200 of secured debt (car loans, home loans, etc.). The difference between secured and unsecured debt is that secured debt is tied to an asset (like a car), and unsecured debt is not.
Chapter 13 bankruptcy is beneficial because it allows you to catch up on payments and keep your assets.
What Happens to Your Car Payment?
As part of your wage earner’s plan, you will revisit your car loan. The amount you owe may also be reduced, especially if you owe more on the car than the vehicle is worth.
Because Chapter 13 bankruptcy can help you catch up on your car payments, you should be able to avoid repossession and hold onto the car once your repayment plan ends – even if you do not end up paying off your entire car loan.
What If You Lose Your Job?
Without a regular income, you may not be eligible for Chapter 13 relief. Fortunately, you may still be eligible for Chapter 7 relief or “liquidation” bankruptcy. If you have assets whose value exceeds the statutory limits set by Congress, you may have to surrender those assets but many clients are able to file a Chapter 7 bankruptcy without surrendering any of their assets.
Can You Keep Your Car During Chapter 7 Bankruptcy?
Sometimes. Depending on how much equity you have in your car and the market value of your vehicle, you may be able to keep it under state bankruptcy exemptions. In Georgia, for example, you can protect up to $5,000 in equity in motor vehicles.
To calculate how much equity you have in your car, subtract your current loan balance from the car’s value. If your equity does not exceed the state exemption limit, you can keep your car during Chapter 7 bankruptcy.
Keep in mind that motor vehicle exemptions do not apply if you are behind on your car loan payments. If your loan is delinquent, the lender can seek to repossess the car even when you are in bankruptcy, although they would have to receive authorization from the bankruptcy court. Of course if you are not in a bankruptcy, your lender can repossess your car at any time if you are behind on your payments.
In some situations, the bankruptcy court will allow you to pay off your equity at a discount to keep the car – even if your equity exceeds the state exemption.
What Is the Best Option If You Want to Keep Your Car During Bankruptcy?
If you have a regular income and want to keep your car during bankruptcy, your best option is generally filing for Chapter 13 bankruptcy.
If you do not qualify for Chapter 13 relief, discuss your options with an experienced bankruptcy attorney.
No matter what kind of bankruptcy you choose to file, you will need to hire a lawyer for help. Your attorney can also review your unique financial situation, evaluate your future goals, and help you determine the best option for keeping your car during bankruptcy.
At the Law Offices of Mark A. Bandy, PC, we guide good people through bad times, and we can help you make the right decisions. Our services are flexible and affordable, we are accessible to answer all your questions, and we offer personalized, client-focused representation.
For over 20 years, we have been helping clients find the best possible outcomes. We can start helping you, too – as soon as you call us at (912) 331-4501 or contact us online.