Contrary to what some people believe, it is not necessary to give away all of your belongings, including motor vehicles, after filing for bankruptcy. If you own a car and file for Chapter 7 bankruptcy, the chances are good that you will be able to exclude a certain amount of the vehicle’s worth. Unfortunately, if the vehicle’s worth is much more than you are able to protect, the bankruptcy trustee who is assigned to your case will likely sell and distribute the remaining proceeds.
Chapter 7 Bankruptcy and Vehicle Equity
When a person files for bankruptcy, he or she can protect property that is essential for daily life through various bankruptcy exemptions. In the state of Florida, there is a $1,000 equity exemption on vehicles. If a person is able to exempt all of the equity in a vehicle, then he or she will be able to keep the car.
If too much equity exists, a bankruptcy trustee has several options to respond, which include selling the vehicle, distributing the remaining funds to creditors, paying the exemption amount, or reimbursing sales costs.
Chapter 7 Bankruptcy and Existing Car Loans
There are a few options that individuals have if they financed their motor vehicle and are still making payments on a car loan. To begin with, it is important to determine whether the car loan is a secured or unsecured debt. In many cases, these loans are secured debt because a person pledged the vehicle as collateral, which means that a person agreed that if they could not pay the loan, a lender can repossess the vehicle. Unfortunately, there is not an option under Chapter 7 bankruptcy that lets a person catch up on missed payments. This means that if a person with a car loan files for bankruptcy, he or she will need to become current on payments on the vehicle to maintain ownership.
Other Options for Vehicles after Filing for Bankruptcy
Some of the other options that individuals having regarding cars after filing for Chapter 7 bankruptcy include the following:
- Reaffirm the loan. If you reaffirm the loan, you will be required to sign a contract with the creditor in which you agree to agree to continue paying for the vehicle and will remain liable for the debt. If you decide to sign a reaffirmation agreement, you will be bound by the agreement and liable for the debt, regardless of bankruptcy status.
- Redeem the vehicle. If you decide to redeem the vehicle, you must offer to pay the vehicle lender the current market value of the vehicle as a lump sum. If you are not able to agree on the amount with the creditor, the court will decide the amount of the vehicle.
- Surrendering the vehicle. If you decide not to keep the vehicle or can not afford the payments, you can still surrender the vehicle, which will erase your debt liability.
Speak with an Experienced Bankruptcy Attorney
If you have questions about the bankruptcy process, it can prove especially beneficial to obtain the assistance of a skilled bankruptcy attorney. Contact the Adam Law Group today to schedule an initial consultation. We have helped numerous people navigate the bankruptcy process and are prepared to make sure that your situation resolves in the best possible manner.