By Ryan C. Wood
One of the most common questions we get is what happens to people’s vehicles when someone files for bankruptcy protection. I have good news for you. Rarely will anyone filing for bankruptcy have to give up or sell a vehicle. Let me tell you why.
Vehicles and Filing Chapter 7 Bankruptcy
Whether you qualify to file a Chapter 7 depends upon your income, expenses, assets and sometimes the types of debts you have. Your bankruptcy attorney will discuss these things with you to determine if Chapter 7 is right for you. If your vehicle or vehicles are paid in full the issue is how much are they worth? California has generous exemptions to protect your vehicles. The vehicle exemption under the 703 exemptions totals $5,100. Then there is the Wildcard exemption totaling $26,925 that can be applied to protect your vehicles too. So if your vehicles are not worth more than $32,025 they should be protected.
If you have a loan on your vehicle still and are current with the loan payments you just need to continue to make the normal monthly loan payment if you want to keep the vehicle. Your loan company may forward a reaffirmation agreement to your bankruptcy lawyer for you to fill out and return to them. A reaffirmation agreement is agreeing to the same or better terms of the vehicle loan you obtained before filing for bankruptcy. Since you are keeping the car your loan company will want a new signed writing that they can legally enforce against you if you do not pay later.
If you are behind on your car loan payments and want to keep the car see below regarding filing a Chapter 13 bankruptcy case to catch up the missed payments or merely pay the fair market value of the vehicle and not want you owe on the loan.
You may also redeem the vehicle for its fair market value and pay less than what you owe on the loan. Of course this is assuming your vehicle is worth less than what you owe on the loan and you purchased the vehicle 910 days before filing for bankruptcy protection.
Vehicles and Chapter 13 Bankruptcy
If you are behind on your vehicle loan payments you can file a Chapter 13 bankruptcy and catch up the missed loan payments in the Chapter 13 Plan. Reorganizing the vehicle loan by filing a Chapter 13 case will lower the monthly vehicle payment.
A common reason to file a Chapter 13 bankruptcy case is to reorganize a car loan. If you purchased your vehicle 910 days before the bankruptcy case is filed you can cramdown what you pay for the vehicle to the fair market value and not what you owe on the loan. The interest rate can be decreased also. For example, if your owe $15,0000 on your vehicle loan but the vehicle is only worth $7,500, you will pay $7,500 plus interest in your Chapter 13 Plan and save thousands of dollars. To cramdown on a vehicle loan the vehicle loan payment has to be part of the Chapter 13 Plan. Some Chapter 13 trustee’s will require that all vehicle payments are part of the Chapter 13 Plan, other trustees do not. This is another jurisdictional issue.
If you are current with your vehicle loan payments and need to reorganize other debts in a Chapter 13 case there should be no reason why you cannot keep your vehicles. Just keep making the normal vehicle loan payment like you always have. If you are in a jurisdiction where the Chapter 13 trustee will allow you to continue to pay the vehicle loan payment directly nothing regarding your vehicle will change upon filing for bankruptcy protection.
