If you’re facing Chapter 7 bankruptcy in Seattle and aren’t ready to lose your car, you may have the option to reaffirm your loan. If you choose to do this, you’re agreeing to make your auto loan payments during your bankruptcy and after it has been discharged.
Your Car in a Chapter 7 Bankruptcy
If you're filing for Chapter 7 bankruptcy in Seattle, you work with a court-appointed trustee. The process involves liquidating your non-exempt assets in order to repay your creditors.
If your vehicle is worth less than the maximum car exemption amount, you should be able to keep it with no questions asked. However, the state of Washington allows its residents to choose between state and federal exemption amounts. This means that you can exempt up to $3,250 for your vehicle under the state exemption, or up to $4,000 if you’re using the federal exemption.
Even though you have the ability to choose, you can’t pick and choose specific exemptions – you must use just the state or just the federal limits. However, both exemption rules allow for a wildcard exemption that can be used for a number of things.
If you choose to use this with your car, you can exempt another $3,000 of value for it under the state rules. The federal wildcard exemption allows you to exempt an additional $1,325 of value, plus any unused portion of a homestead exemption up to a certain amount.
If your vehicle is worth more than you can exempt, your bankruptcy trustee has the option to sell it for its value.
Reaffirmation and Redemption in Chapter 7
Both the options for reaffirmation and redemption exist in Washington State, but for Seattleites facing Chapter 7 bankruptcy, a redemption is usually difficult to accomplish.
In order to redeem your car, you have to pay the lender a lump sum payment for the current market value of the vehicle. If you and the lender can’t agree on the value, a judge decides what you must pay.
Because of the large payment needed for a redemption, many people that don’t want to lose their car choose to reaffirm their auto loan instead. For reaffirmation to work, you have to prove to your bankruptcy trustee that you’re able to make your loan payment throughout your bankruptcy and beyond.
If your lender agrees to this, you sign a new contract called a reaffirmation agreement. When you do this, you’re keeping your car loan and it won’t be wiped away with any other unpaid debts when your bankruptcy is discharged.
Also, any late or missed payment during or after the Chapter 7 could result in repossession and jeopardize your bankruptcy discharge.
Ready to Find a Bankruptcy Auto Loan?
If you decide that reaffirmation isn’t for you and you need to give up your vehicle during your Chapter 7 bankruptcy, that’s OK. In fact, it may even be better for you in the long run.
Once your bankruptcy is discharged, you can find an auto loan in Seattle after bankruptcy. Most lenders won't approve you in the middle of a Chapter 7, but some will after it's over.
Auto Credit Express can help you find these lenders with our nationwide network of special finance dealerships. Our partner dealers in Seattle and the rest of the country specialize in helping borrowers dealing with bad credit, no credit, and unique credit situations like bankruptcy.
We'll work to match you with a dealership near you if you start the process by filling out our fast and free car loan request form.