When filing for bankruptcy, you can typically retain your vehicle. Obviously, it is a bit more complicated than simply filing bankruptcy and not worrying about your vehicle. This article will examine several bankruptcy and vehicle-related scenarios with which I have dealt in the past. A disclaimer applies to motorcycles; here it is... Motorcycles differ from other vehicles in that they can be classified as non-necessity luxury goods; therefore, you should consult with an attorney regarding your specific options regarding motorcycles.
Chapter 7 ""Fresh Start"" bankruptcy scenarios.
You owe nothing on the automobile and it is not worth that much. You do not make enough money to cover even your most basic requirements, but you do not wish to lose your car. If you have a car in this situation, you probably own it wholly. Whether or not you can keep the car will hinge on its value. In Washington, for instance, an individual's automobile exemption is $3450. Washington also allows a $300.00 wildcard exemption. If your car is worth $4500 in its present condition, you could claim the full motor vehicle exemption and then use the wildcard to claim an additional $1050. This will completely protect your vehicle while saving you $1950.00 from your wildcard. Your auto is secure.
You owe nothing on the vehicle, but its value exceeds the exemption value. This is the most complex scenario in a chapter 7 bankruptcy and may be best handled in a chapter 13 bankruptcy. Nevertheless, chapter 7 contains options. Consider that the automobile is worth $10,000. As stated previously, the current vehicle exemption is $3450.00. You can then add the $300.00 exemption for a wild card. This safeguards $6,450.00 worth of the vehicle. therefore, you have $3550 unprotected. Now we have several options.
You could: 1) Permit the trustee to seize and sell the vehicle and use the proceeds to pay off some of your creditors; or 2) Retain the vehicle and sell it yourself. In this case, the trustee will issue you a check for $6450 and use the unprotected $3450 to pay a portion of your creditors. You could then use this money to purchase a new vehicle or a used vehicle outright.
2) Attempt to negotiate a repayment plan with the trustee for the non-exempt equity. Typically, trustees are willing to negotiate a reasonable payment plan to enable you to keep a vehicle. Common terms may include paying back the equity in six equal payments or making a down payment with a monthly payment that culminates in a larger payment when you receive your tax refund. You must exercise caution with this advantageous arrangement, as your discharge could be denied or revoked if you default on your payments.
3) Attempt to obtain a new auto loan after the bankruptcy has been discharged in order to pay the equity to the receiver. You would then have a vehicle payment in order to repay the newly acquired debt.
You owe less on your auto loan than the vehicle is worth. If you wish to file for chapter 7 in order to obtain a fresh start and avoid paying a chapter 13 trustee payment, you should be able to preserve your automobile. Suppose the car is worth $15000.00 and you owe $1200.00. In this circumstance, your equity is $3,000. Because the automobile exemption is greater than the vehicle's equity, your vehicle will be protected. If you wish to retain the vehicle, you will need to maintain the loan payment. However, you should consult with your attorney about what to do during and after the case.
You owe more on the automobile than it is worth. In this scenario, you might owe $15000.00 on a vehicle that is only worth $7000.00, for example. You have multiple options in this situation.
You could: 1) decide to release the vehicle. Why pay more than twice as much for something? You could surrender the vehicle and then search for a vehicle with more favorable terms after your release;
2) You could continue making payments on the vehicle according to the terms of the loan agreement; 3) We could pursue a redemption loan in which you receive a new loan that is limited to the car's current market value. In this case, you must qualify for the new loan, and there may be additional attorney's fees, but it could save you a significant amount of money and allow you to keep the car you adore.
Scenario 5. Bonus Scenario! You have non-exempt equity in your vehicle, but you also have personal property tax liens. If you have no equity in any other property and the amount of the tax lien is greater than the amount of non-exempt equity in your vehicle, the trustee will likely not pursue you or your vehicle. The disadvantage is that if they were to seize and sell the vehicle for the non-exempt equity, they would use the proceeds to pay off or reduce your tax lien. If the trustee leaves you and your vehicle alone, you will still need to find a means to pay those taxes after your bankruptcy is discharged.
Scenarios in a Chapter 13 bankruptcy repayment plan:
You owe nothing on your vehicle and its value is less than the exemptable amounts. In this situation, your vehicle would not affect your chapter 13 plan payment.
You owe nothing on your vehicle, but its value exceeds the exemptable amounts. In this case, we must offer the non-exempt value to your creditors in the form of a trustee payment. This is beyond the scope of this article, but we can pay the non-exempt value over a period of up to 60 months using the trustee payment. This is a valuable tool if you have a high-value vehicle that you cannot afford to part with.
You owe money on the automobile and wish to retain it. This scenario becomes more complicated depending on whether the auto loan was obtained at the time of purchase. It also matters how long ago you purchased the vehicle. If you purchased the vehicle more than 910 days ago, we can reduce your monthly payment based on its current market value. So, if you owe $15000.00 on the car but it is only worth $7000.00, we can propose a repayment plan that only sends back $7000.00 to that creditor as a secured claim. We can also reduce the interest payment on the vehicle, depending on the loan's interest rate and the applicable jurisdiction. If you purchased the vehicle less than 910 days ago, we may still be able to reduce your interest rate, but you will be required to repay the complete balance of the loan as a secured creditor.
You owe money on the vehicle and no longer desire it. Depending on the remainder of your financial circumstances, a chapter 13 may also be a viable option in this scenario. We can propose a proposal that involves the release of collateral. The lien holder will collect the vehicle. They must then sell the item and credit your account with the proceeds. They can then file an unsecured claim for the remaining balance in chapter 13. The advantage to you, however, is that you will end up paying less than you owed (possibly nothing) and will no longer pay interest on the loan.
Clearly, there is no straightforward answer to the question of what happens to a car in a bankruptcy. The good news is that there are numerous options that will allow you to retain your vehicle, as well as alternatives that will allow you to escape a bad deal. If the thought of losing your only vehicle is preventing you from filing for bankruptcy due to financial difficulties, contact a local bankruptcy attorney to discuss your options.
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