Before filing bankruptcy, you should consider the potential impact on all areas of your life, including the ability to keep your vehicle. According to legal website Lawyers.com, there are some frequently asked questions that you should go over with your lawyer before jumping right into a bankruptcy.
Car Concern FAQs about Bankruptcy
If you think bankruptcy is in your future, but you need your car to get to work or to function in your daily life, you need to know how bankruptcy can impact your ability to keep your vehicle. Keeping one or more is determined by the type of bankruptcy you file, the value of the car(s), and how you handle the loan within the bankruptcy.
Here are some FAQs to consider asking your lawyer before you file:
Are my Cars Exempt from Bankruptcy?
Keeping your vehicles in bankruptcy depends upon two things – the type of bankruptcy you file, and the value of your vehicles. If you file a Chapter 7 bankruptcy, your trustee has the ability to sell all your non-exempt property in order to repay your creditors. This could include your cars if their value (or equity if it’s being financed) is more than your state exemption limit. The specific dollar amount and the number of vehicles you're allowed to keep vary by state.
If you file a Chapter 13, you may be able to keep a car, or even two, but you have to prove that you need them in order to get to work. You also have to prove that the payments are reasonable. However, you may not be able to keep your vehicle(s) if the value is nonexempt, your car payment is too high, or if you're making payments on a second vehicle that isn’t a necessity.
Can I Reaffirm my Car Loan?
If you're filing a Chapter 7 bankruptcy and need a car to get to and from work, you can chose to keep paying for your vehicle rather than surrendering it and wiping out the debt. You do this by signing a reaffirmation agreement. There's no reaffirmation necessary in a Chapter 13 because, by the nature of the bankruptcy, you're already repaying a certain percentage of your loan.
Be careful if you're considering reaffirming your loan. Missing a payment after signing this agreement results in an automatic repossession and the sale of the car at auction. If the vehicle sells for less than you owe, you're responsible for paying the difference.
Should I Sell my Car Before Bankruptcy?
You can sell property you own before filing bankruptcy, but why you do this and how you use the profits might impact your future bankruptcy. It's okay to sell nonexempt property you own, including a car, if you need to pay for necessities such as food, clothing, or medical costs. But if you're selling property for other reasons, it could spell trouble, as this could be seen as fraud. It's a good idea to know what your state exemption laws are, and to speak to your lawyer before you sell any property if you know you're going to be filing for bankruptcy.
What Happens to a Car Lien During Bankruptcy?
In a Chapter 7, your trustee liquidates your nonexempt property in order to pay any debts. If most – but not all – of your debts are paid, any remaining debt, including auto loans, are wiped out. However, the lien on your vehicle remains. So, if you plan to keep your car through the bankruptcy, you must make arrangements, or else the lender can repossess it. This is typically done by reaffirming your loan, and continuing to make payments during the bankruptcy.
If You Need a Vehicle During or After Bankruptcy
Now that you have an idea of what to ask your bankruptcy attorney before filing, you may need some information about what to do if you need a vehicle during or after a bankruptcy. Because a Chapter 7 is a relatively short process, if you're unable to keep your car, it's best to wait until it’s discharged before shopping for an auto loan.
Since a Chapter 13 is a longer process, lasting three or five years, it's possible you may need a vehicle during this time. If that's the case, make sure you visit the right type of dealer that can handle people who are in bankruptcy. Not all lenders can do this, and the ones that can typically only work through special finance dealerships.
Here at Auto Credit Express, we work with a nationwide network of special finance dealers that have lenders available to work with people in many types of credit situations, including bankruptcy. Let us guide you toward a dealership in your area that can help you. Simply fill out our free and easy car loan request form to get the process started today!