If you are contemplating a Chapter 7 bankruptcy filing, you might already know you could be at risk of losing some of your property. Chapter 7 is known as the "liquidation" form of bankruptcy where your property can be liquidated to help pay some of your debts. For most people, no property is ever lost due to exemptions and other actions. To find out what could happen in regard to your vehicles during chapter 7 bankruptcy, read on.
Reaffirm Your Debt
Bankruptcy offers some people the chance to keep their vehicles as long as the payments are current. This is known as a reaffirmation. When financial problems happen, bill juggling becomes an art form. Some bills, however, can wait. If you are unable to pay your bills and are about to declare Chapter 7, understanding how bankruptcy treats your debts is vital. Some debts are connected to your property. Obvious examples are the mortgage/house and auto loan/vehicle connections. If you fail to pay your medical bills, credit card bills, and personal loans, it's bad. If you fail to pay things like car loans, rent, and mortgages, you can lose your property to foreclosure or repossession.
Use your limited funds to pay your auto loan because you cannot reaffirm a debt that is past due. Credit card bills and the like are unsecured by property. You can be sued, but a bankruptcy filing puts an end to that action immediately. If you still owe money on your car loan, you can pledge (anew) to make good on the original arrangement. That allows you to keep your car and also gives you a head start on improving your credit picture.
Use Your Exemptions
All states offer bankruptcy exemptions but the amount and nature of the exemption vary from state to state. You can look up your own state of residence and get an idea of what to expect. Some states list personal or work vehicles separately and some lump vehicles in with the general personal property bucket. The amounts are not usually enough to cover expensive vehicles unless you consider the loan.
If you still owe money on your vehicle, it is automatically less attractive to the bankruptcy trustee. If the trustee were to seize a vehicle that had a lien on it, the lien would have to be satisfied before it could be sold and used to pay your creditors. The number to pay attention to is the value after you deduct how much is owed on it. The equity, in other words. If you owe more than it's worth, you can probably keep it regardless of state exemptions. If it's worth a great deal and you only owe a little, you will need every penny of the exemption to save it.
Losing property is uncommon due to the above solutions. Speak to someone with your local bankruptcy attorney services office about your vehicle and don't let this worry stop you from gaining financial relief.
Share