Bankruptcy and your vehicle

The collectors are calling you and everyone you know, your wages are about to be garnished and you can barely afford necessities. You know you need to file bankruptcy. So what’s stopping you, the fear of losing your car, truck or motorcycle?

In most cases, when you file bankruptcy, you can keep your vehicle. Of course, it’s a bit more complicated than just filing bankruptcy, don’t worry about your car. This article will explore various scenarios I have dealt with in the past related to bankruptcies and customer vehicles. Motorcycles come with a caveat, here it is… Motorcycles are slightly different from other vehicles in that they may be classified as luxury items that are not necessary, so contact your attorney to see what your specific options are regarding motorcycles. motorcycles.

Scenarios in a Chapter 7 Fresh Start Bankruptcy.

Scenario 1. You owe nothing on the car and it’s not worth that much. You don’t earn enough money to cover even your basic needs, you have a car and you don’t want to lose it. Chances are if you have a car in this situation, you are the outright owner. Whether or not you can keep it will depend on the value of the car. In Washington, for example, the automobile exemption for an individual is $3,450.00. Washington also allows a wild card exemption of $3000.00. If your car is worth $4500.00 in its current condition, a person could use the full motor vehicle exemption and then use $1050 of the wild card. That will fully protect your car and still save $1950.00 of your wild card. Your car is safe.

Scenario 2. You owe nothing on the car, but it is worth more than the exemption value. This is the most complicated scenario in a chapter 7 bankruptcy and may be best dealt with in chapter 13. However, there are options in chapter 7. Let’s say the car is worth $10,000.00. As discussed above, you may use the current vehicle exemption of $3,450.00. Then you can add to that the $3000.00 wild card waiver. That protects $6450.00 of value in the vehicle. which means you have $3550.00 unprotected. Now we have a couple of options.

You could:

1) Let the trustee take and sell the vehicle and use the proceeds to pay off some of your creditors. If you do this, the trustee will write you a check for $6,450.00 and use the unprotected $3,450 to pay some of your creditors. You could then use this money to help get a new car or buy a used car outright.

2) Try to reach an agreement with the trustee to pay the non-exempt principal. Trustees are usually willing to work out a reasonable payment plan that allows you to keep something like a vehicle. Common terms may be paying the principal back in six equal installments or making a down payment with a monthly payment ending in a larger payment when you receive your tax refund. You should be careful with this helpful arraignment, if you fail to meet your payments, your download could be denied or revoked.

3) Try to get a new car loan after the bankruptcy is over, which would allow you to pay the principal to the trustee. You would then have a car payment to pay off the newly incurred loan.

Scenario 3. You owe less on the car than the car is worth. If you’re looking to file a chapter 7 to get a fresh start and avoid making a chapter 13 trustee payment, you should be able to protect that car. Let’s say the car is valued at $15,000.00 and you still owe $12,000.00. In this case you have $3000.00 in equity. Because the car exemption is worth more than the equity you have in the vehicle, your car will be protected. You will need to talk to your attorney about what to do during and after the case, but you will need to keep paying on your loan if you want to keep the vehicle.

Scenario 4. You owe more on the car than it is worth. In this scenario, you might owe, for example, $15,000.00 on a loan because that’s only worth $7,000.00. You have several options in this scenario.

You could:

1) decide to drop the car. Why pay more than double the value of something? You could turn in the vehicle and then look to purchase a vehicle with better terms after the discharge;

2) You could continue to pay for the vehicle according to the terms provided in the loan agreement;

3) We could look into a redemption loan where you get a new loan that is only up to the value of the car in its current condition. In this case, you must qualify for the new loan and there may be additional attorney fees, but it could potentially save you a lot of money and keep you in a car you love.

Scenario 5. Bonus Scenario! You have non-exempt equity in your vehicle, but you also have tax liens that are attached to personal property. This one is a bit tricky, but if you have no other value in any other property and the amount of the tax lien is greater than the non-exempt value of your vehicle, the trustee probably won’t bother with you or your vehicle. The downside to this is that if they were to take and sell the car for the non-exempt equity, then they would use that money to pay off or reduce their tax lien. If the trustee leaves you and your vehicle alone, you will still have to find a way to deal with those taxes once your bankruptcy is over.

Scenarios in a Chapter 13 repayment plan bankruptcy:

Scenario 1. You owe nothing on your car and it is worth less than the exempt amounts. Under this scenario, his vehicle would have no impact on his Chapter 13 plan payment.

Scenario 2. You owe nothing on your car, but it is worth more than the exempt amounts. Under this scenario, we have to offer the non-exempt security to creditors in the form of their trustee payment. While this is beyond the scope of this article, we can pay the non-exempt value through the trustee’s payment over a period of time that can last up to 60 months. This is a valuable tool if you have a car that is worth a lot of money and you can’t bear to part with it.

Scenario 3. You owe money on the car and want to keep it. This scenario is complicated depending on whether your car loan was taken out at the time you bought the car. It also matters how long ago you bought the car. If you bought the car more than 910 days ago, we may reduce what you pay for the car based on its current value. So let’s say you owe $15,000.00 on the car but it’s only worth $7,000.00, we can come up with a plan that only returns $7,000.00 to the creditor as a secured claim. We can also reduce the interest payment on the car depending on the rate at which the loan applies and depending on the jurisdiction. If you purchased the car less than 910 days ago, we may still be able to lower the interest rate you pay on the car, but the full dollar amount of the outstanding loan will need to be repaid as a secured creditor.

Scenario 4. You owe money for the car and you don’t want it anymore. In this scenario, a Chapter 13 may also be a good option depending on how the rest of your financial situation looks. We can propose a plan that delivers the guarantee. The link holder will come to pick up the car. They then have to sell it and credit their account for the amount of the sale. In chapter 13, they can file an unsecured claim for the remaining balance. However, the benefit to you is that you will end up paying less than what you owed (possibly zero) and no more interest on the loan.

Bottom line: As you can see, there is no simple answer to what happens to a car in bankruptcy. The good news, however, is that there are many options that allow you to keep your vehicle and still other options that will allow you to escape a bad deal. If you are in financial difficulty and the thought of losing your only car prevents you from filing, call your local bankruptcy attorney to discuss which option might be best for you.