Introduction
When you file for bankruptcy, it is natural to wonder what will happen to your car. Bankruptcy can have significant implications for your assets, including your vehicle. In this article, we will explore what typically happens to a car when you file for bankruptcy and the various factors that can influence the outcome.
Types of Bankruptcy
Before delving into the fate of your car, it is essential to understand the different types of bankruptcy. The two most common types for individuals are Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 Bankruptcy: In Chapter 7 bankruptcy, also known as liquidation bankruptcy, your non-exempt assets are sold to repay your debts. However, each state has exemptions that protect certain assets, including a vehicle up to a specific value.
Chapter 13 Bankruptcy: Chapter 13 bankruptcy is a reorganization bankruptcy that allows individuals to create a repayment plan to pay off their debts over a period of three to five years. This type of bankruptcy often allows individuals to keep their assets, including their car, as long as they continue to make the agreed-upon payments.
Exemptions and Equity
When it comes to your car in bankruptcy, exemptions and equity play a crucial role. Exemptions are laws that protect specific assets from being sold to repay debts. The exemption amount varies by state, but it typically covers a certain dollar value of equity in your car.
Equity: Equity refers to the value of your car minus any outstanding loans or liens. For example, if your car is worth $15,000, and you owe $10,000 on it, you have $5,000 in equity.
If the equity in your car is less than or equal to the exemption amount, you can typically keep your car in bankruptcy. However, if the equity exceeds the exemption, the bankruptcy trustee may sell your car to repay your debts.
Reaffirmation Agreement
In Chapter 7 bankruptcy, you may have the option to enter into a reaffirmation agreement with your car lender. A reaffirmation agreement is a legally binding contract that allows you to keep your car by agreeing to continue making payments on the loan.
By signing a reaffirmation agreement, you essentially exclude the car loan from the bankruptcy discharge. This means that even though you have filed for bankruptcy, you remain personally liable for the car loan. It is crucial to carefully consider the implications of a reaffirmation agreement and consult with a bankruptcy attorney before making a decision.
Chapter 13 Bankruptcy and Car Payments
In Chapter 13 bankruptcy, you can often keep your car by including it in your repayment plan. The repayment plan will outline the monthly payments you need to make to catch up on any missed payments and continue paying off the car loan.
By including your car in the repayment plan, you can prevent repossession and retain ownership as long as you make the agreed-upon payments. It is essential to stay current on your car payments during the Chapter 13 bankruptcy process to avoid any potential issues.
Conclusion
When you file for bankruptcy, the fate of your car depends on various factors, including the type of bankruptcy you file, the equity in your car, and the state’s exemption laws. In Chapter 7 bankruptcy, exemptions and equity determine whether you can keep your car or if it may be sold to repay your debts. In Chapter 13 bankruptcy, you can typically keep your car by including it in your repayment plan and staying current on payments. It is crucial to consult with a bankruptcy attorney to understand the specific implications for your situation.
References
– Nolo: www.nolo.com
– United States Courts: www.uscourts.gov
– Investopedia: www.investopedia.com
