In our offices we usually get the question, can I keep my car if I file bankruptcy? In the following article we will answer this and other related questions on the subject.
At Ortiz & Ortiz our New York City bankruptcy lawyers have been serving the community for over 30 years. As financial and bankruptcy experts we can help put together a plan for you. Do not hesitate to contact us and let us know your case.
Can I really keep my car if I file for bankruptcy in 2022?
There are 2 main types of bankruptcies such as Chapter 7 bankruptcy and Chapter 13. The former liquidates some of your assets while the latter focuses on paying off debts. On the other hand, Chapter 11 bankruptcy is more focused on business and companies.
For company related matters our New York business lawyers can help you better understand your financial issues.
What happens to your vehicle in bankruptcy depends both on the type of bankruptcy you file and the equity you have in your vehicle.
As asset protection attorneys in New York we will always find a way to protect your assets against anyone who files legal claims against them.
Key factors in knowing if you can keep your car after filing bankruptcy
The vehicle is potentially valuable and considered an asset that your creditors can pursue to collect a debt. However, your car can be included in an exemption that protects it in order to get it back.
These are some of the factors to consider in order to know if you can keep you car if you file for bankruptcy:
- If you are still financing the vehicle, you own it or you are leasing it.
- The type of bankruptcy you are filing under.
- Applicable exemptions depending on where you live.
- Is your car equity exempt?
- Are you behind on your car payments?
- The value of the vehicle.
Protecting Your Auto Equity
Each state decides what property it can safeguard through bankruptcy exemptions. These will cover key assets to maintain your home and a job and in many cases some equity in your house and vehicle.
The exemption amounts vary by state, and still, because most people do not own high-status assets, they will often be able to protect most of their property in bankruptcy.
What happens to the non-exempt property will depend on the bankruptcy chapter filed.
Note: You might be interested in reading our blog post “Home refinance after bankruptcy”. You may also contact our Estate Planning attorney in New York that will help you protect your assets.
Dealing with your vehicle loan payment
If you fail in paying your loan, the lender can sell your vehicle at auction and use it to pay off the balance, even if you file for bankruptcy.
That is, you must be able to continue making your vehicle payments after filing for bankruptcy and find a way to update them. Throughout the article we give you several options. Plus, you can contact our expert bankruptcy attorneys today.
Let’s delve into the question of knowing how you can keep my car if you file for bankruptcy.
The future of your car under bankruptcy Chapters 7 and 13
- Bankruptcy is a great option for those who can protect all their capital and are up to date with payments.
- Chapter 13 will be a better option if you are behind on payments and have a significant amount of nonexempt principal and want to keep your vehicle.
The reality is that each chapter offers different benefits. You must understand that you will have to pay for any vehicle you want to keep knowing how much equity you can protect. At that point you will know which is the best bankruptcy option for you.
Note: On our website you can learn all about the difference between bankruptcy Chapter 7 vs 13. You may also contact our New York bankruptcy lawyers directly for a personalized consultation.
Do you want to learn everything about buying a car after bankruptcy? is that even possible? Check our blog.
Keeping your car in Chapter 7 bankruptcy
In Chapter 7, most of your unsecured debts are written off. In return, you relinquish non-exempt property and may require the sale or delivery of assets to pay your debts.
Note: The items exempt from clearance and the amount that may be exempt varies by state.
Keeping your car under Chapter 7 depends on:
- If you are not behind on your loan payments.
- The market value of the vehicle you own is less than the amount of the exemption.
- If local bankruptcy laws allow you to exempt all of the equity you have in your car.
- Calculate how much equity you have in the vehicle: You must subtract the current balance of your loan from the value of the car.
- Check your state’s motor vehicle exemption: If you have less equity than the exemption limit, your car is protected.
Is your car equity exempt?
- Almost all states allow some type of exemption for motor vehicles.
- Each state allows those who file bankruptcy to keep certain types of property up to a monetary limit.
If your car’s equity exceeds the exemption limit
In this case, the following may occur:
- The trustee can sell your vehicle, give you the exempt amount, and use the remainder to pay creditors. Another option is to be offered to pay off the principal at a discount to keep your car.
- You have the option of turning over your vehicle to the lender and after bankruptcy this will eliminate your liability for the car loan. Obviously you will be left without a vehicle and it will have consequences for your credit similar to the repossession.
- The lender can repossess your car if you are behind on your vehicle loan payments. If the vehicle loan is not up to date in payments, your vehicle is not protected. You could still keep it by paying off the remaining loan in one lump sum or by reaffirming the loan. This will allow you to modify it to stay up to date with payments.
If you are behind on your vehicle payments
The reality is that if you are behind on your vehicle payments, you will lose your vehicle. This occurs even if your vehicle is exempt unless you take over the debt or the lender agrees to some other repayment plan. Let’s see some alternatives below.
Options to keep your vehicle under Chapter 7
Reaffirming the debt
You will keep the car if you and the lender sign a new payment agreement. You can set new terms in this agreement as long as the lender approves them. Of course, keep in mind that if you fail on the loan payments, the deficiency balance will be your responsibility.
A reaffirmation agreement must be approved by the bankruptcy court. As a general rule, it won’t be approved unless the lender reduces your loan main balance or interest rate. You must also prove that you can afford the payments.
Redeem the car
Under Chapter 7, you can trade in a car by paying the lender the current value of the replacement car. This can only be done if the car is exempt or the trustee has decided not to sell it, that is, if he has decided to abandon the property.
- It is a good option if the value of the car is much less than the amount of your loan.
- To qualify for the trade-in, the car must be used for personal, domestic or family use.
- This requires a global payment, so in many cases it is not feasible.
Note: You must file a motion to redeem in bankruptcy court and this can be very complex. You will need expert bankruptcy attorneys, so don’t hesitate to contact our team. At Ortiz & Ortiz we have a combined experience of over 30 years resolving cases under bankruptcy Chapter 7.
Using a wildcard exemption to keep your car
In many states you can use a wildcard exemption for any property. If the motor vehicle exemption does not cover your car’s equity, you may be able to protect the entire amount by using this exemption.
Pay and drive
This option was removed from the Bankruptcy Code of 2005 and therefore, it no longer exists legally, at least technically. However, it is still a viable option for many people:
- If you do not sign a reaffirmation agreement or redeem your car, you can continue to make your monthly payments to the vehicle lender but due to the bankruptcy discharge, you are not required to do so;
- This results in that after receiving your debt discharge, the lender can repossess your car at any time, even if you are making payments;
- Very few lenders will do this as they prefer to receive a steady payment rather than risk a cheap sale of a repossessed vehicle at auction.
In this option you just have to make sure you keep your payments up to date.
If you own the vehicle free and clear you must protect it from the bankruptcy trustee that requires claiming exemptions on Schedule C to cover the value of the car.
Any value of the car that you do not claim as exempt will open a path for the trustee to seek the sale of your car by paying their share. Although you will receive a payment, you would lose your vehicle.
Keeping your car in Chapter 13 bankruptcy
In this type of bankruptcy, instead of liquidating nonexempt assets to pay off creditors, you will make a plan to pay off your debts. That is, the properties are not sold, the payment process begins, and the finances are reorganized.
- If you own a vehicle, you can keep it.
- If you have significant equity in your vehicle or are behind in paying for it, it will often be easier to keep your car if you file bankruptcy Chapter 13 instead of 7.
- It is important that you keep up with your car payments.
- In some circumstances, through Chapter 13 you can also reduce your car loan. Especially if your vehicle costs less than the full amount of your loan.
When you file for bankruptcy under Chapter 13, your debt is divided into 3 groups:
- Priority Debts: They will be paid off in full.
- Secured Debt: Auto loans are included here. If you qualify for the repayment plan and catch up on your loans, you may be able to keep your vehicle.
- Unsecured debts: In the event of bankruptcy, these are canceled once the payment plan has been completed.
Note: If you cannot afford the loan, pay for repairs and other costs of the car, you can return it to the lender. As we mentioned before, this will have credit consequences. Find out the consequences of bankruptcy.
In Chapter 13 bankruptcy, you will pay in a payment plan that lasts for three to five years. However, not everyone will qualify because this chapter requires you to show that you have sufficient income to pay the amount required by the bankruptcy rules.
Options to keep your vehicle under Chapter 13
- Continue to make your car payments: If you are up to date on your vehicle loan, you can continue to make your payments outside of your Chapter 13 payment plan loan.
- Pay your non-exempt principal on your payment plan: If you can’t protect all of your equity, you can still keep your vehicle. For this you can pay the non-exempt part through the payment plan.
- Add the car loan to a Chapter 13 payment. You can include your late payments or your entire car loan to the Chapter 13 payment plan. Some jurisdictions will require you to include both if you are behind on your payments. Here the terms of your loan come into play to see if you can stretch or reduce your total payment.
- Reduce the car loan. If you had the auto loan for at least 910 days when you filed for Chapter 13 bankruptcy, you may be able to adjust the terms in your favor. In a cramdown, you pay the value of the vehicle in lieu of the promissory note as part of your payment plan. You can also reduce your interest rate by 5-6%. Something that works great when you owe more than the total value of the car.
Can I keep my car in New York If I file for bankruptcy?
The answer in this case is the same as for the rest of the states, you have ways of keeping it.
In New York under Chapter 7 bankruptcy you can have a vehicle even without equity. The amount of principal that you are allowed is limited and will depend on whether you are using the New York or federal exemptions.
With New York bankruptcy exemptions:
- You can keep a vehicle with up to $4,000 in equity.
- If you are disabled and own a car with special equipment, you are allowed up to $10,000 in equity.
- New York also allows you an additional $1,000 through the wildcard exemption if you do not own a home with equity.
Note: You can find out the value of your car here.
If you use federal bankruptcy exemptions:
- You are allowed a maximum of $3,450 in equity.
- Additional wildcard exemptions of $1,150 and $10,825 are available.
Note: These wildcard exemptions may not be available if you are using the federal homestead exemption or if you need to use some or all of these exemptions for other assets.
You might be interested in reading our step by step guide on how to file bankruptcy in New York.
As we’ve mentioned throughout the article, to keep your car in Chapter 7 bankruptcy, you must be up to date on your car loan. You can use the options mentioned in the previous paragraph “Keeping your car in Chapter 7 bankruptcy”.
Ortiz & Ortiz can help you keep your car and restore your credit
Filing isn’t an action that should be taken lightly since both forms of bankruptcy can severely damage your credit. Learn how to raise your credit score fast and how to find out all my debts.
Now that you have a clear answer for the common question “Can I keep my car if I file bankruptcy? you may require assistance in New York.
Our firm has helped hundreds of clients in the same situation. Do not hesitate to contact us for a private consultation. We can better help you by knowing your specific case.