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When people imagine what bankruptcylooks like, they may picture themselves losing everything. It is true that you may have to part with some things, but you really won't have to lose everything. The bankruptcy courts make certain allowances for you in terms of household furnishings and other personal property as long as it is not too valuable. You will have options regarding your car, no matter what type of bankruptcy you decide is best for you. Another way to keep your car when filing for bankruptcy is to reaffirm the debt, which means agreeing to a new payment plan with the lender. About two-thirds of those filing Chapter 7 bankruptcy indicate on Form 108, the statement of intent, that they plan to go with this option.
Being up to date on your car payments before you file for bankruptcy makes it much more likely you’ll keep your car when you file for either Chapter 7 or Chapter 13. Regardless, you’ll need to prove your commitment to home and auto lenders by agreeing to their terms. Chapter 13 bankruptcy requires court approval for your repayment plan, while Chapter 7 is contingent on your previous history with the mortgage lender. David Haynes is a full-time attorney experienced in basic bankruptcy concepts, as well as secured transactions, liens, and lawsuits in bankruptcy court. He currently serves as the senior attorney and privacy officer at the Office of Systems Integration in Sacramento. Over the course of the last decade, he has written about complex bankruptcy topics for various publications, including The Balance and the Loyola Los Angeles Entertainment Law Review.
How Long Does Chapter 13 Bankruptcy Stay On Your Credit
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Pay and drive is an option that does not legally exist anymore—at least technically.
When no intention to reaffirm, redeem or surrender the car is filed by the deadline, a car loan is dropped from the bankruptcy. In many cases, the car owner and lender continue to do business and always, and courts rarely enforce it. Of course, this only works for the car owner if they’re making payments on time. A car loan is a secured debt, which means the car is collateral that can be taken back by the lender if you don’t pay. When you file for Chapter 7 bankruptcy, you must list your assets on a form called Schedule A/B. Your car is an asset, because it has value. You must also file a statement of intention that that tells the court whether you plan to reaffirm your car loan, redeem the car or surrender it.
What Is Equity Of The Car Value
To learn more, read why we started Upsolve in 2016, our reviews from past users, and our press coverage from places like the New York Times and Wall Street Journal. Research and understand your options with our articles and guides. This is especially risky because you can only file Chapter 7 bankruptcy every 8 years, so there is no easy relief available if anything goes wrong. The evidence fades, witnesses disappear, and the stories change. If youre facing an urgent legal matter, Cravens & Noll can provide hope to your situation. Check out some other ways the world’s first robot lawyer can help.
He also provides legal advice relating to complex, sensitive, and high-profile IT contracts. First, you must determine how much equity you own in the property you hope to retain. Equity is determined by subtracting the balance of any mortgages or other loans secured by the property from the value of the property. For example, if your house is worth $100,000.00, and you have a balance of $75,000.00 on your mortgage, then you have $25,000.00 of equity in your house. It also doesn’t matter how much you ended up paying for it by the time the car loan was finally paid off. That amount includes the interest you paid and depending on the interest rate on your auto loan, that can be quite a bit more than the car was ever worth.
Lowering Your Monthly Car Payment With The Help Of A Bankruptcy Attorney
You redeem a car by paying the lender an amount equal to the current replacement value. Usually, filers get the lump-sum redemption amount from a family member or a bankruptcy redemption loan lender. If you file for Chapter 13 bankruptcy, you have to continue making your monthly mortgage payments, as well as pay what you were behind on. This can be difficult, even if the payment plan that you, the court and your lenders agree to, seems to be doable.
They’re called a “wildcard” because they can be used to protect any property. If your car is worth more than the available motor vehicle exemption, see if you can protect the rest with a wildcard exemption in your state. The equity in your car is essentially the fair market value of your vehicle minus the remaining balance of your loan. Therefore, if you still owe $11,000 on your vehicle and the fair market value is $8,500, then you have no equity. While this might be financially frustrating, it does mean that your car has no value in the bankruptcy estate and is protected from being sold without the aid of an exemption. The redemption option involves paying off the balance of the car loan at the value of the car.
Keeping Your House in Chapter 7
But if you have a lot of equity value, the court may determine you can “afford” to repay more of your debt. First, the court subtracts your mortgage and homestead exemption from the value of your home. Then, the court adds that remaining equity value into your “available” funds that can be used to repay your debts. Exempted property are the assets that you’re allowed to keep. Each state and the federal government sets its own exemption limits. Instead of clearing your debts, you enter a repayment plan, usually for 3-5 years.
If you've recently declared bankruptcy, getting an auto loan is difficult, but not impossible. Filing for bankruptcy affects your credit score, which makes you a less favorable borrower in the eyes of many lenders. However, there are ways to get approved for an auto loan even with a Chapter 7 or Chapter 13 bankruptcy on your record. Many homeowners try to keep their house through Chapter 13, but often the payments are too much for them to handle. If you’re disciplined and face no other financial problems during the plan’s payment period , you may be able to make it through and keep your house. Under this system, you aren’t forced to sell your home as long as you keep up with your payments.
The bankruptcy court will hold a reaffirmation hearing to determine if you can afford to make the car payments. If you are still making payments on your car loan when you file for bankruptcy, then the equity you have in the car becomes important. Equity is what you still owe on the car subtracted from its current value.
The amount that you will pay creditors, however, depends on the amount of property that can be exempt through exemptions in the state of Virginia. Under Virginia law, filers have up to $6,000 in equity for their motor vehicles. In a joint case with a married couple, each spouse has up to $6,000 for a car in their name.
It makes filing bankruptcy potentially productive,” she said. There is a way to keep your car when you file for Chapter 7 bankruptcy even if its worth more than the exemption limit. Most people filing for bankruptcy, though, dont have the bundle of cash needed to do that.
With a Ch 13 bankruptcy, your debt is restructured and you have the opportunity to catch up on your bills, keep your home, and keep your car. Maureen Milliken has been writing about finance, banking, investment, entrepreneurship, real estate and other related topics for more than 30 years. She also is is the author of three mystery novels and two nonfiction books. That said, there are some financial downsides to hanging on to your house through a bankruptcy proceeding.
The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. If you answer no to either of the first two questions, you could lose your car in Chapter 7 and should consider filing for Chapter 13. You have a lot of non-exempt car equity over and above the $12,100 wildcard exemption. The longer you’ve owned the car and the more you’ve paid, the more likely it will be over the exemption limit. On the other hand, cars are not like fine wine — they lose their value fast. Keeping your car after bankruptcy depends on your financial situation.
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