One of the most common concerns I hear when I speak to someone for the first time about bankruptcy is whether or not they can keep their automobile. It is a reasonable concern. Without a car, many people would find it impossible, or at least very difficult, to get to work. Or take their children to activities, or go to the grocery store, or do most of anything. Losing their car would be a non-starter for filing.
The good news is, you don’t have to lose your car when you file bankruptcy.
Now, there are a few important things to note. First of all, you have to be able to make the payment going forward. Bankruptcy can discharge (or wipe out) an old loan on a vehicle that was repossessed or totaled. You can also surrender your current vehicle and avoid any future obligation to pay. However, you cannot eliminate the remaining balance on a vehicle AND keep it going forward. Cars are “secured” debt… if you don’t pay the loan, the finance company or dealership will take back the “security” (the car).
If you want to keep a vehicle in Chapter 7 bankruptcy, you must be current on the payment at the time of filing, and you must keep the payment current in the future. If you are behind on the payment, the only option for keeping it is to file a Chapter 13 bankruptcy, and submit a bankruptcy plan to catch up the payment. While this is a useful option, this is not the simplest option, as a Chapter 13 is more complicated, longer in duration, and more expensive. You will want to get the payment current, if at all possible.
A separate question might be if you have multiple cars. You will not necessarily need to surrender a second or third car, especially if there are multiple driving adults in the home. The issue may be whether or not you are able to “exempt” your cars from your creditors.
Exemptions in bankruptcy law allow you to protect assets, including cars. There is a $4,000.00 exemption that can be used towards the equity in your car, equity being the value minus the remaining balance owed. For most people, this is not an issue, as cars depreciate quickly, and it is common to owe more than what it is worth. If you have a car you own outright, you will need to discuss the value with your bankruptcy attorney to make sure it is not an issue. For instance, if you have a classic car that you rarely drive, it might be difficult to exempt.
I am an experienced bankruptcy attorney who has been helping people file for bankruptcy protect, and keep their assets such as cars, for over 13 years now. Call me to set up a free consultation to discuss your situation.