Are you thinking about filing for bankruptcy but aren’t sure what will happen to your vehicle? Here’s what happens to your car when you file for bankruptcy.
Are you considering filing for bankruptcy? Are you worried about what can happen to your assets should the process go through? Well, you’re not the only one.
Over half a million people in the U.S. filed for bankruptcy in 2020. While everyone’s reasons for bankruptcy vary, one thing is certain, you’re probably questioning whether to not you’ll be able to keep your car.
A car is more than a vehicle; it is a lifeline that can keep you going in the most difficult times. Make sure to keep reading to find out if you’ll be able to keep yours if you file for bankruptcy.
What Happens During Chapter 7 Bankruptcy?
When you’re experiencing something as stressful as money issues, it can be hard to latch on to specifics. The problem is that the smallest details can have a big impact on what assets you can keep when filing for bankruptcy. This includes the types of bankruptcy you’re filing for.
There are two main categories you need to worry about when you declare bankruptcy, and the first is in chapter 7. This involves the liquidation of your assets. Take heart, this doesn’t automatically mean you will lose your car.
During chapter 7 bankruptcy, you are allowed to keep your car on the condition that your loans are up to date. You also need to make sure that you meet the exemption obligations in your state. Exemptions vary, so following rules set in California won’t cut it in Nebraska.
Something else to consider is a bankruptcy may impact your credit for a long time once it’s done. This can make getting a car loan difficult. It’s best to be certain you need to file before you do.
What About Chapter 13 Bankruptcy?
Chapter 13 bankruptcy differs from chapter 7 bankruptcy. Chapter 13 is more focused on repaying debt instead of giving up your assets. Even though it’s less common than chapter 7 bankruptcy, over 150,000 cases of Chapter 13 were filed in 2020 alone.
There are three categories of debt that you’ll have to cover if you file for chapter 13 bankruptcy. The first is the debts that you won’t be able to bypass. These need to be paid in full if you want chapter 13 to proceed.
The second kind is a secured debt. Car loans factor into this too. You’ll have to pay any money you owe on the car or other assets in this category. Should you do this, you have a much higher chance of keeping the car.
The last type you should know about is secured debts. These will stop after you complete the repayment process and are the least concerning of the three.
Is Income a Deciding Factor?
It’s easy to think that you can simply file for bankruptcy. The truth of the matter is that it’s more complicated than it seems.
You should also know there are prerequisites to filing for chapter 7 bankruptcy. For example, if you pass a certain income threshold, your eligibility to file for chapter 7 will diminish rapidly.
Additionally, you should consider if you make enough money to cover any remaining payments. If you don’t, it may be a good idea to just surrender the car entirely.
Will the Car’s Value Play a Part?
When you file for bankruptcy, a key factor in whether you get to keep your car is its market worth.
In chapter 7 bankruptcy, you can be eligible for an exemption on your car if its current value isn’t more than what you owe on it. The exemptions are also easier to get if you have been on top of your payments.
This is why you should always be aware of how much money your car can garner on the current market. Just because you bought it for an arm and a leg doesn’t mean it will be worth the buying price.
What About Surrendering the Car?
There is another option that you can take when going bankrupt, which is surrendering your car. You would take this step if your debt on the car outpaces its market value.
If a court determines that you are eligible, the creditor will bid your car off. Any money made from the sale of the car will go towards paying off your bankruptcy.
You should be aware that if someone cosigned on the car loan, they’d have to pay off any money that wasn’t covered by the auction. Also, surrendering a car can be bad for your credit in the long term.
Does choosing the right lawyer make a difference?
If you approach this situation without knowing how to file for bankruptcy, it’s easier to lose more than you need to. This is why you must have a lawyer who specializes in many forms of bankruptcy.
If you choose to handle your case independently or with an unqualified lawyer, your chances at success will diminish quickly. The good news is that there are plenty of lawyers in these practices that are well-reviewed.
Remember, you are always putting yourself into a risky situation when you go into bankruptcy unprepared. With the right bankruptcy lawyer, you can get the advice you need to keep and maintain your assets.
Don’t Put Your Car In Limbo When You File for Bankruptcy
Owning a car plays a big role in your financial health. Without a car, it may be difficult to go to a job interview or pick up your kids and or buy groceries. The last thing you need to worry about is losing this important resource when you file for bankruptcy.
Going bankrupt can be complicated, so it’s important to be well informed of the specifics. After all, the kind of bankruptcy you enter into determines the status of assets like your car.
If you’re filing for bankruptcy and want to keep your car, then you should call Husker Law in Omaha at (402) 415-2525. We have the experience and knowledge you need to keep your car!
