When you file for a Chapter 7 or Chapter 13 bankruptcy, you may be worried about what will happen to your car. Thankfully, if you are prepared and go about your bankruptcy the right way, you may be able to keep your car during bankruptcy. A Chapter 7 bankruptcy is designed to help eliminate unsecured debts.
These include credit card debt or medical debt. Your car is typically a secured debt. This means that if you default on your car payments, the auto dealer that you owe money to has the right to seize your car. Because the debt is secured, you typically won't lose your vehicle in the liquidation of a Chapter 7 bankruptcy. You can choose to relinquish possession of your car to lessen your debt, or you can keep your car and continue to make payments on it as required.
It is important that you know whether or not you have a clear title to your car. If you have pledged your vehicle as security for a debt, or if you do not actually own your vehicle but are instead financing or leasing the vehicle, then you will need to take action when you file for bankruptcy to make sure that you are permitted keep the keep the car.
First of all, you can reaffirm your contract with your car creditor. IN a reaffirmation agreement, you will contact your car creditor and agree to pay the balance that is owed on your car note despite the fact that you have filed for bankruptcy. As a result, you can continue to make payments and the creditor will continue to let you keep the car as long as the payments are made.
Reaffirmed debts will not be discharged, which means that you will still need to make the car payment after the bankruptcy is completed. If you do not make car payments like you promised to do, then your creditor has the right to repossess the car and sue you for the deficiency balance. After the finance company repossesses the car, chances are that they will sell it at an auto auction. Typically, the finance company won't get enough money at the auction to pay off the loan. This is called a "deficiency" and you will be legally obligated to pay the deficiency as a party of your debts.
Reaffirmation agreements are voluntary, so if you file for bankruptcy and don't believe that you can continue with your car payments, you are not compelled to make one of these agreements with a lender. Instead, you can speak with a bankruptcy attorney who can help you to decide whether or not a bankruptcy agreement is a wise idea.
As well, you can redeem your car from the creditor by making a lump sum payment that is equal to the car's fair market value in order to retain your car. The U.S. Bankruptcy Code requires that you must pay the creditor the replacement retail cost of the car if you plan to do this. The balance of the debt will be discharged after it is paid.
Sometimes, this can be a benefit to individuals who owe more on a car than it is actually worth. For example, if you owe $10,000 on a vehicle that is only worth about $5,000, then you can pay the $5,000 and the car company will be required to discharge the other $5,000 from your account. You will want to talk with a local bankruptcy lawyer if you think that this is the best option for you.
If you cannot keep your car with either of the two above options, then you can surrender your vehicle to the creditor. This means that you will not be allowed to keep the car. If you want more information about preserving your car in a bankruptcy, then you will want a professional bankruptcy lawyer on your side to help you out. Don't hesitate to hire a local lawyer who can aid you in your case today to get you more information!