Filing Chapter 7 Bankruptcy
After you file for Chapter 7 Bankruptcy, a court-appointed trustee gathers your assets, which are not exempt, and this property is now considered part of the “bankruptcy estate.” The idea behind Chapter 7 Bankruptcy is that the court will sell your assets, repay your creditors and grant a discharge of your qualifying debts after your creditors have been repaid.
What property is NOT sold? Any property that the trustee determines has no value and property that is exempt under state and federal bankruptcy laws.
So can the debtor keep his car after filing Chapter 7 Bankruptcy? If the debtor is current on his payment and does not have any extra equity in the car, the debtor should be able to keep his car. What if the debtor owns multiple cars? Talk to a bankruptcy lawyer to determine if all of the vehicles can be protected during the Chapter 7 Bankruptcy process.
Other ways to deal with your car in a Chapter 7 Bankruptcy can include reaffirming the debt (creating a binding contract to meet the terms of an installment agreement with the creditor), surrendering the car, redeeming the car (paying the loan in full) or keeping the car and continue making payments (this was supposed to be eliminated in 2005 with the bankruptcy law updates, but it still exists).
FIling Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is not considered a liquidation bankruptcy. Chapter 13 Bankruptcy allows the debtor to create a debt repayment plan for 3 to 5 years. During this time, the debtor makes payments to the trustee, who then distributes the payments to the creditor.
Can the debtor keep his car? If the debtor owns the car free and clear, then he can keep his car. If the debtor owes payments, the debt payments are incorporated into his debt repayment plan. For example, if the debtor owes $1,500 in car payments, this amount can be paid over the 3 to 5 year payment period but the debtor must continue to make the regularly scheduled payments.
There are several other considerations. If the debtor purchased the car within 910 days of the bankruptcy filing they must pay all of the car loan. For example, if they had an outstanding balance of $7000 on a car loan whose blue book value was only $5000, they would be required to pay the entire $7000 balance (if they want to keep the car and the car was purchased less than 30 months prior to filing Chapter 13 Bankruptcy).
What if the car note is more than 910 days old? The debtor may qualify for a “cram down” which means they may be allowed to pay the current value of the car instead of the full amount of the car loan, significantly lowering the debt obligation.
Hiring a Bankruptcy Lawyer
If you are facing financial ruin, filing for bankruptcy protection may be one way to stop a home foreclosure, property repossession, bank account levies, and creditor harassment.
Filing bankruptcy is an important financial decision which should not be done without consulting with a bankruptcy lawyer. Bankruptcy may have serious financial ramifications. Talk to a bankruptcy lawyer and find out if bankruptcy is right for you.
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