If you file for bankruptcy, what happens to your car and car loan depends, in large part, on what type of bankruptcy you file -- Chapter 7 or Chapter 13. In Chapter 7 bankruptcy, you can keep your car if you are current on your loan payments and the equity is exempt.
As long as the equity is less than the exemption amount (and you claim it on your Schedule C), your bankruptcy trustee can’t touch your car. Chapter 7 bankruptcy is not a way to get a free car.
A bankruptcy filing under Chapter 13 of the Bankruptcy Code allows you to pay for the amount of equity not protected by an exemption over a 3 - 5 year long repayment plan. Keeping a car that’s not paid off First, if you’re close to having it paid off, there is a good chance you have at least a little bit of equity in the car.
Bankruptcy helps people wipe out debt, including vehicle loans. For instance, if you owe more than your car is worth, you can return it to the lender and discharge (erase) the financing. However, for most people, a car is a necessity.
The motor vehicle exemption helps you keep your car, truck, motorcycle, or van in Chapter 7 bankruptcy by protecting equity in a vehicle. The answer is yes—you can file for Chapter 7 bankruptcy and keep your car, truck, motorcycle, or van using your state's motor vehicle exemption.
If you file for Chapter 7 bankruptcy and local bankruptcy laws allow you to exempt all of the equity you have in your car, you can keep the vehicle—as long as you're current on your loan payments. And if the market value of a vehicle you own outright is less than the exemption amount, you're in the clear.
You may be able to drive a charged-off car Depending on where you live, a lender is required to issue a default notice and allow you the opportunity to bring the loan current before repossession. In such cases you can avoid repossession if you pay off the debt or make satisfactory payment arrangements.
If you don't sign a reaffirmation agreement, the lender can repossess your car after your case closes and the automatic stay lifts. Some car lenders are known to repossess the car immediately, even if you are current on payments.
You own your vehicle outright The official receiver will only let you keep your vehicle if it's essential and of low value. A vehicle may be classed as essential if: You couldn't do your job without it. You or someone in your household needs it because of a disability.
Many people wonder, “Can I lower my car payment in chapter 7?” The answer is, “It depends.” Chapter 7 bankruptcy will not discharge your auto loan because it is a secured debt. You can't keep the car and not pay it off. However, you can potentially lower your car payment through the process of redemption.
When a car loan is charged off, the lender believes the remaining debt is uncollectible. That said, the debt isn't forgiven, so you will still need to make payments. Once charged off, the lender likely offloaded the debt to a collection agency, so you will have to settle the debt with them directly.
While neither scenario is good, in most cases, a charge off is better than a repossession. When a car is repossessed, the lender not only gets to keep the money you've already paid, they take your vehicle and you will still owe the deficiency balance after the vehicle is sold.
If you've missed a payment on your car loan, don't panic — but do act fast. Two or three consecutive missed payments can lead to repossession, which damages your credit score. And some lenders have adopted technology to remotely disable cars after even one missed payment.
Congress says that all debts must be included in bankruptcy, even if they survive the bankruptcy. The lenders also stop reporting the payments on that loan even though you are still making them. This explains why payments don't show up on credit reports.
30 daysHiding Your Car From the Repo Company Typically, recovery companies attempt to find your car for up to 30 days. Some borrowers attempt to keep their car in a locked garage during the search, which is one of the only places where a recovery company can't take your vehicle from.
Selling a vehicle after discharge in bankruptcy and using the proceeds for your own personal reasons will cause the judge to cancel your bankruptcy proceedings. Make sure you pay off your car loan in full immediately after selling the vehicle.
After you file for bankruptcy protection, your creditors can't call you, or try to collect payment from you for medical bills, credit card debts, personal loans, unsecured debts, or other types of debt.
A Chapter 7 bankruptcy will generally discharge your unsecured debts, such as credit card debt, medical bills and unsecured personal loans. The court will discharge these debts at the end of the process, generally about four to six months after you start.
If you don’t pay the loan off, the car lender can repossess the car and even start a wage garnishment to collect the loan balance. 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 Bankruptcy Code allows every filer to protect one car with a value of up to $4,000. If a married couple files a joint bankruptcy case, they can protect two cars worth $4,000 each.
Bankruptcy exemptions exist to make sure everyone filing a bankruptcy case can keep their most basic possessions. Depending on the state you’re filing in, and how long you’ve been there, you may be able to choose between the federal bankruptcy exemptions and the exemptions granted by your state law.
A collateral provides the car lender with security while you pay off the loan balance. That’s why this type of debt is called “ secured debt .”. It’s also what allows a repossession to take place if there is a payment default. If you’re not making car payments to anyone, you own the car free and clear.
Redeem the car by paying only how much it’s actually worth. One way to do this is through a redemption, where you pay for the car's current value in a single payment, no matter how much you owe. If that sounds like an option for you, here's where you can learn more about how to redeem your car.
A bankruptcy filing under Chapter 13 of the Bankruptcy Code allows you to pay for the amount of equity not protected by an exemption over a 3 - 5 year long repayment plan.
Most people can keep their car and get debt relief by filing bankruptcy. Of course, if you need a fresh start but you need your car just as much, you probably wonder about how this works in Chapter 7 bankruptcy. Keep reading to learn what a bankruptcy filing means for your car.
Your Car in Chapter 7 Bankruptcy. Chapter 7 bankruptcy takes about four months to complete and doesn't require you to enter into a repayment plan with creditors. You also get to keep, or "exempt," a certain amount of property.
Here are some choices you and your attorney will consider. Surrender the car. Just like in Chapter 7 bankruptcy, if you give your car back to the lender and complete your Chapter 13 plan, the bankruptcy will discharge any remaining loan balance. Pay the loan outside of the plan.
If you can protect all of your equity and you're paying on a car loan, or if you used the vehicle as collateral for another loan, you'll have three choices: surrender the vehicle, reaffirm the debt, or redeem the car for the value. Surrender the car.
Also, if you've had the car loan at least 910 days (two and a half years) when you file your bankruptcy, you might even be able to "cramdown" the loan amount. A cramdown lets you reduce the principal amount to the value of the vehicle and lower the interest rate to about 5% or 6%.
For instance, you'll likely be able to stretch out a shorter car loan to the full five years of the plan. Also, if you've had the car loan at least 910 days (two ...
Also, if the car suffers damage in an accident that isn't paid by insurance, you'll be responsible for it as if you had never filed bankruptcy. Redeem the car. If your car is worth less than you owe, but you want to keep it, you can pay the lender just the value of the car. However, there's a catch: You'll have to pay it in a lump sum.
Chapter 7 bankruptcy takes about four months to complete and doesn't require you to enter into a repayment plan with creditors. You also get to keep, or "exempt," a certain amount of property.
When you file for Chapter 13 bankruptcy, you propose a plan to pay back some or all of your debts over a three to five-year period. A bankruptcy normally discharges your personal liability on a car loan but does not wipe out the lender's lien on the vehicle. So if you want to keep the car, you must continue making payments to your lender.
The remaining loan balance is treated as unsecured and wiped out when you complete your plan and obtain a discharge. Example. Jason's car is worth $7,000 but his loan balance is $10,000. If he qualifies for a cramdown, he may be able to pay the lender $7,000 through his Chapter 13 plan and own the car free and clear after bankruptcy.
This is referred to as a car loan cramdown. A car loan cramdown may also allow you to reduce the interest rate on your loan as well. When you cram down your car loan, you pay the lender an amount equal to what your car is worth through your plan. The remaining loan balance is treated as unsecured and wiped out when you complete your plan ...
However, if your car has nonexempt equity, you must pay your unsecured creditors an amount equal to the nonexempt portion through your plan. (To learn more about how Chapter 13 works and what you must pay through your plan, see Chapter 13 Bankruptcy .)
You May Be Able to Cram Down Your Car Loan in Chapter 13. If you satisfy certain conditions, you can reduce the principal balance of your car loan to the car's fair market value in Chapter 13 bankruptcy. This is referred to as a car loan cramdown. A car loan cramdown may also allow you to reduce the interest rate on your loan as well.
In Chapter 13 bankruptcy, you are allowed to keep all of your property including your nonexempt assets. The Chapter 13 trustee does not sell your property to pay your creditors. In return, you pay back a certain amount of your debts through a repayment plan. This means you can keep your car.
However, if you don't include your car loan in your plan, you may not be able to take advantage of certain benefits like a Chapter 13 cramdown (discussed below).
Chapter 13 tools for car loans 1 Reduce principal: In Chapter 13 you can " cram down " a car loan, but only if you took the loan out more than two and a half years ago. To do this, we find the current value of the car. Then we can reduce the principal of the car loan from the current balance, to just the value of the car. So if you owe $9,000, and the car is worth $5,000, cram down reduces the balance of your loan from $9,000 to $5,000. 2 Reduce interest: For many car loans in Chapter 13, you can reduce the interest rate on the car loan from an exorbitant rate to something more reasonable. In past cases we have reduced interest rates to somewhere between 4 and 6 percent, typically. This can be a big help for subprime car loans. 3 Catch up on arrears: In Chapter 13, if you're behind on a car loan, you can use bankruptcy to force the lender to accept catch-up payments. So if you're $1,000 behind on the car, you can take those arrears and stretch them over a three-to-five year period, pay a small monthly payment to catch up (say, $20-35 a month in this scenario), and then resume making your regular monthly payments. This is a good option if you're facing repossession.
In Chapter 7, you have three options for dealing with a car loan. These options are to surrender the car, reaffirm the loan, or "retain and pay.". Surrender: If you file Chapter 7 and you wish to get rid of your car with a loan, you have the option of surrendering the car to the bank.
The upside to this is that you can walk away from the loan, without having to pay any deficiency (i.e. the difference between the amount of the loan and the value of the car that you would generally owe if you walk away form a car loan.) The deficiency is wiped out in a Chapter 7 case.
Retain-and-pay: This is the most common option for car loans in Chapter 7. You get to "discharge" your car loan, which means they can never come after you personally for any unpaid amount on the loan. However, instead of surrendering the car, you keep the car, and continue making the payments for as long as you want.
However, instead of surrendering the car, you keep the car, and continue making the payments for as long as you want. Both the borrower and lender act as if the bankruptcy had never been filed. Once the loan is paid off, you can get the lien released, and own the car free and clear, just as if you hadn't filed bankruptcy.
Since the accident happened after your filing date, also called the petition date, the bankruptcy trustee will not be able to take any personal injury settlement you may be entitled to as a result of the accident.
If the insurance payout doesn’t pay off the full balance of the loan, don’t panic: your bankruptcy discharge will protect you! If you initially planned on keeping the vehicle and reaffirming the car loan, you should update the court by filing an amended Statement of Intentions as explained in this article.
Getting into an accident while in an ongoing Chapter 7 bankruptcy doesn’t have to be a complete nightmare. Make sure your insurance company, the trustee, and the bank (if you have a loan) have all of the information about the accident. Then go back to making sure you and yours are taken care of. While a property settlement from the insurance company may have to be paid to the trustee, any personal injury settlement you’re entitled to as a result of the accident is yours to keep.
If you have a loan on your car, make sure you notify your lender about the accident and provide them with the relevant insurance information. They should already know that you’re in an ongoing Chapter 7 bankruptcy, but it can’t hurt to provide them with the information again. Any property settlement you’ll receive for the vehicle will first ...
If not, you may need to amend your Schedule C (Exemptions) to ensure your property settlement is protected to the greatest extent possible.
If the payout is greater than the loan balance, you will get the rest, up to the amount of the allowed exemption. Since cars lose their value so quickly, chances are you won’t get more than the loan balance plus the exemption amount.
You’ll have to make a claim with your insurance company. Since they may need to coordinate the property insurance aspect of your claim with the trustee, make sure you have your case information (case number and date of filing) and the trustee’s name and contact information handy to provide to the adjuster.
If you owe money on your car, then the money you owe is subtracted from the market value to determine your equity. For example, if you have a car with a market value of $10,000 and you owe $12,000 then you have no equity.
In other words, if you default on the terms of the agreement, the entity can seek all legal recourse against you as if you had never filed bankruptcy. Whether it is in your best interest to sign the agreement is something that you should speak to your attorney about.
Exemptions are property that is exempt from becoming part of the bankruptcy estate, in other words, property you are allowed to keep.
To understand the process, you first have to understand the concept of the bankruptcy estate. The bankruptcy estate is all property that you own that is not subject to exemptions. Property included in the bankruptcy estate is subject to sale to satisfy your creditors. Exemptions are property that is exempt from becoming part of the bankruptcy estate, in other words, property you are allowed to keep. In Florida the dollar amount of car equity allowed is $1,000 for single filers or $2,000 for married filers that file jointly. Unfortunately, if you own your car outright and it is worth more than $1,000 for a single filer or $2,000 for a married filer, filing jointly, and you car exceeds that value, then your car may be subject to sale to satisfy your creditors. However, your attorney may be able to work out an arrangement with the Trustee (the person assigned to administer your case) that will allow you to make payments on the non-exempt equity portion of your car's value. For instance, if you are a single filer with the $1,000 exemption amount and your car has a market value of $3,000, then you may be able to pay the Trustee the $2,000 of non-exempt equity over a period of time and keep your car. There are finance companies who will finance the purchase of the car for you if you can't afford to buy it back, however the rate will be high.
Again, your attorney may be able to work out a payment plan with the Trustee, or you may be able to finance the equity and keep the car. Short of that, you car may be subject to sale to satisfy your creditors.
To illustrate, a single filer that owns a car worth $3,000 and does not own a home and is eligible for the $4,000 personal property exemption can use the $1,000 car exemption and $2,000 of personal property exemption, thus exempting the car altogether from the bankruptcy estate.