Can You Keep Your Car in Chapter 7 Bankruptcy?
Meta: If you’re wondering can you keep your car in Chapter 7 bankruptcy, the answer is – it depends. There are several options; keep reading to learn more.
Can You Keep Your Car in Chapter 7?
Many people wonder if they would be able to keep their vehicles after filing bankruptcy, especially if they have filed Chapter 7 bankruptcy. Although it’s quick, this type of bankruptcy is known as liquidation bankruptcy, meaning some of your assets may be liquidated to partially reimburse your creditors. After that, the remainder of your debts is discharged.
However, many debtors wrongly assume that their cars are completely safe in this type of bankruptcy, which is not always the case.
Those who file Chapter 7 bankruptcy should know that they can ask to keep their house and their car. But, the assets they can keep depend on the property’s value and if they would be able to seek exemptions.
If you want to make sure you can keep your car in bankruptcy you’ll have to take proper precautions before filing and retain a good lawyer for Chapter 7 bankruptcy.
How to File Chapter 7 Bankruptcy Without Losing a Car
Those who seek any type of debt relief have to list all property and assets they own when they file bankruptcy.
One of the most frequently seized assets in Chapter 7 bankruptcy are cars and other types of vehicles. Generally, it’s because vehicles are easy to sell, they are usually the assets with the high monetary value, and their value is easy to check and discover. Whether you’ll be able to keep them depends on several factors.
As we have said, keeping your vehicle in Chapter 7 bankruptcy depends on whether you’ll have the exemptions available to protect it. The Bankruptcy Code provides several bankruptcy exemptions a debtor can claim in order to protect some of their assets. Although federal rules and laws primarily govern the law on bankruptcy, some states such as Georgia choose their own set of bankruptcy exemptions.
Car Exemption Amount in Georgia
Most U.S. states have a motor vehicle exemption which protects vehicles up to a certain amount of their worth. Currently, Georgia’s motor vehicle exemption is up to $5,000. Here’s how a motor vehicle exemption work: If you, for example, own a car worth $4,500, your vehicle will most likely be protected since the state’s motor vehicle exemption amount is $5,000.
But what if a vehicle is worth more than $5,000? In that case, if you want to keep the vehicle, you can owe the court money or use some of the wildcard exemption left. A wildcard exemption in Georgia is $1,200 (and you may be entitled to up to $10,000 in unused homestead exemption if you own a home). So, if the state’s motor vehicle exemption doesn’t cover the entire amount of your car’s worth, you may be able to protect it by using this exemption.
But, if you don’t have enough left of your wildcard exemption, the rest have to be paid to the court. In some cases, trustees may allow monthly payments, but others may offer just several months to complete the buyback.
Options to Keep Your Car in Chapter 7 Bankruptcy
Debtors with car payments can also face losing their car as those who own the car outright. Whether that will happen depends on the vehicle equity.
So, if you don’t have a car loan, the car equity is the same as the car’s value. But, if you have a car loan, the car’s equity is the amount left after taking your loan balance and subtracting it from the value of your car. Most cars don’t keep their value very well, so if you are close to the end of paying your car loan, you may not have a lot of equity.
Bear in mind that the exemption amount only needs to protect the amount of equity you have in it, not the car’s total value. For instance, if your car is worth $10,000 and you owe $6,000, the car equity is $4,000. In this case, the vehicle’s equity is less than the exemption limit in Georgia, and there shouldn’t be any issues in keeping the car.
Suppose the exemption amount doesn’t cover the vehicle equity. In that case, the bankruptcy trustee appointed to that bankruptcy case will most likely sell the vehicle, return the exemption amount to the debtor, and distribute the remaining amount to the creditors after deducting sales costs and fees. But, if there’s nothing left to repay creditors after deducting sales costs and trustee’s commission, the trustee probably won’t sell the vehicle. That process is called abandoning the vehicle.
If the trustee abandons the vehicle, the debtor might be able to keep it by paying for the nonexempt equity amount and making payments for the vehicle loan on time.
There is another way to keep a car in Bankruptcy Chapter 7, and that is – if the debtor can afford to pay the trustee for the nonexempt equity of the vehicle.
How Long Can I Keep My Car After Filing Chapter 7?
Chapter 7 bankruptcy can discharge all qualifying debt, including car loans. But that doesn’t mean you get to keep your car for free. And it also doesn’t eliminate your lender’s right to take the assets you agreed to put up to ensure payment of the loan, which is often the car. That means you have to continue making an auto loan payment and be current with the loan payments in order to keep the car.
But if you are behind with your vehicle loan payments, the car lender can repossess the vehicle because it won’t be protected by exemptions.
If that occurs, you may have to redeem the vehicle by paying for the car’s current estimated value in a single lump-sum payment.
The other option is signing a reaffirmation agreement. In this case, lenders will require you to sign a new contract where you agree to pay for the car loan and make yourself liable to this obligation again. Although the reaffirmation agreement may have the same terms as the original contract, some terms can be negotiated. That means you can try to reduce your car payment rate.
However, if you are unable to do any of the suggested ways to keep your car – exempt the vehicle from bankruptcy, redeem the vehicle or enter a reaffirmation agreement – your car will probably be liquidated within several months after you file for bankruptcy.
If you feel that the whole bankruptcy process is too complex for you, consider hiring an experienced bankruptcy attorney. Attorneys at Bournakis & Mitchell law firm can help you evaluate your total debt, how much equity you have in your vehicle and what are your options if you want to keep your car in Chapter 7 bankruptcy.
Consequences of Filing Chapter 7 Bankruptcy
Chapter 7 bankruptcy in Georgia allows you to discharge unsecured debts as well as some secured debts. It doesn’t involve a debt repayment plan; instead, the bankruptcy trustee collects and sells nonexempt assets to pay creditors.
In addition to $5,000 worth of vehicles, with this debt relief form, you can also keep up to $5,000 of personal property, pensions, IRA, 401K, and 403B plans, and defined-benefit retirement plans.
Don’t forget that if you fail to obey a bankruptcy court order or conceal assets that would be the property of the estate, your debtor discharge can be denied.
However, every bankruptcy case is different. That is why you should talk to a bankruptcy lawyer if you consider bankruptcy filing. A qualified bankruptcy lawyer with deep knowledge and understanding of local bankruptcy laws would be a perfect choice.
Bournakis & Mitchell P.C. offers a free evaluation to all prospective clients to discuss their issues and determine available options. Our mission is to help you find a long-term solution that will help you move forward without the burden of debt.