Can I Keep 3 Cars in Chapter 7
In a Nutshell
Most people can keep their motorcar and get debt relief by filing bankruptcy. Of grade, if you need a fresh start but you demand your automobile just as much, you lot probably wonder about how this works in Chapter 7 bankruptcy. Keep reading to larn what a bankruptcy filing means for your car.
Well-nigh people tin go on their machine and get debt relief past filing bankruptcy. Of course, if yous demand a fresh get-go but you need your car simply as much, y'all probably wonder about how this works in Affiliate vii bankruptcy. Proceed reading to learn what a bankruptcy filing means for your car.
Is the car yours? Or are y'all still paying the bank for it?
Either way, it's your property, called an nugget, and is listed on Schedule A/B of your bankruptcy forms. The only exception to this general rule is if y'all're leasing the vehicle.
Leasing the car?
Ane way to tell if you're leasing your vehicle is mileage restrictions. If y'all're supposed to drive less than a certain number of miles every year, you're likely leasing your vehicle. Since a machine lease is a fleck of a unlike story, at that place is an entire Guide to Leases in Bankruptcy in our Learning Center that explains it all. Cheque information technology out!
If it'due south not a charter, but you lot're still making monthly payments, your car serves every bit "collateral" for the bank that loaned you the coin to buy it. A collateral provides the motorcar lender with security while you pay off the loan residual. That'due south why this type of debt is chosen "secured debt." Information technology'southward too what allows a repossession to take identify if there is a payment default.
If y'all're not making car payments to anyone, yous own the automobile free and clear.
Keeping a car you own free and clear
If you own your car free and articulate, the adjacent question you have to answer is "how much is my car worth?" The answer - the car'due south fair market value - determines whether you risk losing the machine in a bankruptcy.
How much is your machine worth?
If you sold your machine today, every bit is, what's the most someone would pay y'all for information technology? That's the value that matters. It doesn't thing how much the car toll when y'all bought it… that's old news. If you've had your car for a few years, it's no longer in the same condition as when you bought it. How much it cost then doesn't tell you lot how much information technology'due south worth today.
Information technology besides doesn't matter how much you ended upward paying for it by the time the car loan was finally paid off. That amount includes the interest you lot paid and depending on the interest rate on your auto loan, that can be quite a flake more than the motorcar was ever worth.
Find out how much you can protect with an exemption
Filing a bankruptcy instance is meant to requite you a fresh first. Bankruptcy exemptions exist to brand sure everyone filing a bankruptcy case tin can keep their about basic possessions. Depending on the state you're filing in, and how long yous've been at that place, you may be able to choose betwixt the federal defalcation exemptions and the exemptions granted past your state police.
The federal bankruptcy exemptions are listed in the federal bankruptcy law, chosen the Defalcation Code. The Bankruptcy Code allows every filer to protect ane automobile with a value of up to $4,000. If a married couple files a joint bankruptcy instance, they tin can protect two cars worth $4,000 each.
If you're not able to use the federal bankruptcy exemptions, brand sure y'all cheque your state bankruptcy laws. Bachelor exemption amounts differ from state to land. If you think your car is worth more than the available exemption amount, consider speaking with a defalcation lawyer in your land about it.
Getting additional protection by claiming a wildcard exemption
The Defalcation Lawmaking and some (but not all) states also let filers to take advantage of a wildcard exemption. They're called a "wildcard" because they can be used to protect any property. If your car is worth more than the available motor vehicle exemption, run into if yous tin protect the rest with a wildcard exemption in your state.
What if my car's fair market value is greater than the exemption corporeality?
If a vehicle yous own costless and clear has a fair market value that is much higher than the bachelor exemptions, the Chapter 7 bankruptcy trustee can sell the auto and employ some of the sales proceeds to pay your credit cards and other unsecured debts. But first, they take to requite you your exemption amount.
Example : Your car is worth $15,000 and you can exempt $six,000. The bankruptcy trustee sells the car for $15,000. Yous get $6,000 to purchase a unlike car. The rest is distributed to your unsecured creditors by the bankruptcy trustee.
And so how is it possible that most people get to keep their machine?
Since cars don't keep their value very well, information technology's non common to take a significant amount of equity over and in a higher place the available motor vehicle exemption. Chances are, if yous've had your car long enough that you paid off the car note, its fair market value is well below the exemption amount.
Chapter 13 bankruptcy can help, also!
If yous have an expensive motorcar you wish to keep, just you need debt relief, speak to a bankruptcy attorney about Chapter 13 bankruptcy. A defalcation filing nether Chapter 13 of the Bankruptcy Code allows you lot to pay for the amount of equity not protected by an exemption over a 3 - five twelvemonth long repayment plan.
Keeping a car that'southward not paid off
Get-go, if you're close to having it paid off, in that location is a good run a risk you have at to the lowest degree a little scrap of equity in the car. In this context, equity is calculated by subtracting the current loan balance from the motorcar's value. Every bit long every bit the equity is less than the exemption amount (and you claim it on your Schedule C), your bankruptcy trustee can't touch your machine.
About your auto loan
Chapter 7 bankruptcy is not a way to become a free motorcar. If you're nonetheless making payments on a auto loan, you haven't paid for your car yet and the only way to keep the car is to pay for it.
Redeem the machine by paying only how much it'south actually worth
One way to practice this is through a redemption, where you pay for the car's electric current value in a unmarried payment, no affair how much you owe. If that sounds like an option for you, here'due south where you can learn more about how to redeem your car.
Is paying a lump sum to redeem your car non possible? You have other options!
If you're like nigh, you lot probably don't have access to that kind of coin right after your defalcation filing. That is where reaffirmation agreements come in.
Reaffirmation Agreement Nuts
A reaffirmation agreement allows a bankruptcy filer to keep their automobile by preventing the car loan from being discharged. They exist, in large part, to protect banks and credit unions later on a Affiliate vii defalcation. Here are some details about the procedure of reaffirming a car loan.
If you lot were facing repossession, a reaffirmation may not exist the way to go
If the only reason the automobile lender hasn't taken back the car yet is the automatic stay that took effect when your bankruptcy petition was filed, reaffirming the debt is a risk that may not exist worth the reward.
Keep the car, keep the debt
One time the reaffirmation agreement is approved by the defalcation court, the reaffirmed debt is excluded from your discharge and y'all have to pay it off no thing what. If you don't pay the loan off, the motorcar lender tin can repossess the automobile and even start a wage garnishment to collect the loan balance.
This is specially risky considering you can only file Chapter 7 bankruptcy every 8 years, so at that place is no easy relief available if anything goes wrong.
Truly starting with a clean slate
Fifty-fifty if yous weren't facing repossession before filing, if your monthly income is not enough to comfortably brand the payment on your car loan every calendar month, it may exist in your best interest to surrender the automobile and start with a clean slate.
If you lot give the car back as part of your bankruptcy filing, y'all're relieved from paying the loan. The discharge protects you even if the machine sells for less than what you lot owe.
Summary
If you own your car gratis and clear, you will be allowed to go on it as long as its current value is less than the available exemption amount. If you lot're still making payments on the machine, yous tin choose to continue the automobile, or surrender it back to the car lender. If you lot surrender the car, your obligation to pay the car loan is discharged along with your unsecured debts.
If you lot are considering filing for Chapter 7 bankruptcy, but can't beget a lawyer, Upsolve's free web app may be able to help. Learn more than in our 10-Step Guide to filing Defalcation for Free and if you similar what you come across, take this short quiz to detect out if you're a skilful fit!
Source: https://upsolve.org/learn/can-keep-car-file-bankruptcy/
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