Can I Keep My Car After Filing for Bankruptcy?
Bankruptcy is a serious decision that can affect your credit for up to ten years, depending on the kind of bankruptcy you file. However, if you’re drowning in debt that you can’t pay off, it may be your only option for getting your finances back on track.
There are various factors that determine whether you will be allowed to keep your car after filing for bankruptcy. Because your car is considered an asset, and possibly a valuable one, creditors may seek it as a means of collecting debt. Your car, on the other hand, may qualify for an exemption that shields it against repossession.
Protecting Your Car Equity in Chapter 7
When you file for bankruptcy, you get the chance to “exempt” from the proceedings property that you’ll need for work and daily needs. Each state determines what property its citizens are allowed to keep (which will be specified in the state’s exemptions) and whether they are allowed to avail of the following:
- state exemptions
- the federal exemptions, or
- choose from the previous options which works best for you.
Note: Nevada has opted out from Federal bankruptcy exemptions. Only state exemptions are available.
You’ll be allowed to keep your car if you can exempt all of the equity in it. In fact, even if there’s a little amount of nonexempt equity, you’ll probably be able to keep it since it won’t be worth selling. The trustee will “abandon” it in that circumstance. (See The Motor Vehicle Exemption in Bankruptcy for additional information on how auto exemptions operate and how to obtain your state’s motor vehicle exemption amount.)
However, if there is significant nonexempt equity, the trustee will do the following:
- sell the vehicle
- pay you the amount exempted
- reimburse costs of sales and other incurred fees
- take a fraction of the proceeds as a fee for selling the car, and
- divvy up the remaining funds to your creditors.
What Happens to Your Car in Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is another option, and it’s in stark contrast to Chapter 7. You’ll enter a debt repayment plan rather than liquidating non-exempt assets to pay creditors. This type of bankruptcy does not result in the sale of your property; instead, your finances are restructured, and you will begin the repayment process. You’ll be allowed to keep your automobile if you own it entirely.
You’ll have a three- or five-year payback period, after which part of your outstanding obligations may be dismissed, meaning you won’t have to pay them any more. However, not all debts are dischargeable. Credit card and medical debt, for example, can be dismissed, but mortgages and school loans cannot.
In the course of Chapter 13 proceedings, your liabilities are divided into three categories:
- Priority debts: This type of debt need to be repaid in full. This includes bankruptcy costs, unsettled tax bills for the past three years, and support for your child and spouse.
- Secured debts: An example of this type is car loans. The amount owed on a car loan may be decreased in a Chapter 13 bankruptcy proceeding if the current value of the automobile is lower than what is actually owed. Another point to be considered is if you can apply for a repayment plan and be up-to-date on your loan, you may be able to keep your car.
- Unsecured debts: These will be settled in the bankruptcy after your repayment plan has been completed.
Keep in mind that if you can’t pay off your automobile loan or can’t afford repairs or payments, you may get out of them by surrendering the vehicle to the lender, which, as previously said, has credit ramifications.
Pay and Drive in Bankruptcy Law
Under the concept of pay and drive, drivers were permitted to keep their cars as long as they didn’t default on their bills. Since 2005, pay and drive has been excluded from bankruptcy law. You must pursue one of the other options to keep your vehicle in a Nevada bankruptcy.
Freedom Law Firm is here to help.
Bankruptcy is often the last but necessary resort. It is a delicate and complex proceeding, and you want someone with plenty of experience to consult you and guide you through the process and help you determine the scope of the discharge.
In many cases, unless a party in interest files a complaint objecting to the discharge, the bankruptcy court may issue a discharge order relatively early in the case – generally, 60 to 90 days after the date first set for the meeting of creditors.If you would like to find out whether bankruptcy is the right option for you, please request a call-back by submitting a short online form. All initial consultations are free and confidential.