Written By: Emil FleysherSeptember 22, 2021

Read about everything you need to know about the relationship between bankruptcy and vehicle ownership.

What Assets Can You Keep During the Bankruptcy Process, and Will Your Car Be Affected?

Many people who are struggling with debt try to avoid filing for bankruptcy. This is because they are afraid of losing their most valued possessions, like their automobiles. Fortunately, you don’t necessarily need to surrender your car to get your bankruptcy discharge.

How can you figure out which assets you can keep in bankruptcy? Here's what you need to know about bankruptcy and keeping your vehicles.

Your car, truck, or SUV is essential for many reasons. It’s almost certainly one of your most precious possessions. It's also one of your most useful. Most of us rely on our vehicles to earn a living, to transport our loved ones, for recreation, etc. The risk of losing that vehicle in bankruptcy seems too overwhelming for most people. Moreover, it leads to a delay in speaking with a bankruptcy attorney to explain the process. Fortunately, a qualified bankruptcy attorney can explain if and how your car can be retained in both a Ch. 7 liquidation bankruptcy and a Ch. 13 reorganization bankruptcy.

Your bankruptcy attorney must analyze your vehicle’s condition, value, and loan balance. They must do this to figure out the best way to apply exemptions and legal strategies. The vehicle is an asset. So, your bankruptcy attorney can assist you in properly filing your exemptions and protecting your vehicle from repossession or turnover.

Here’s an overview…

Reaffirm the Auto Loan

Reaffirming your auto loan with the lender is one of the best methods to protect your vehicle when you file Chapter 7 Bankruptcy. If you have a remaining balance and the car is not paid off yet, you may have access to this option.

A reaffirmation agreement requires you to agree in writing with the lender to continue the loan terms while keeping the vehicle loan out of the bankruptcy discharge. Lenders agree to this arrangement since it is advantageous to them. They will continue to collect money from you. And, they will have the right to repossess the vehicle if you fail to make those payments. The disadvantage for you is that the automobile loan does not fall under bankruptcy protection. And, you will not be able to discharge it. You will, however, be able to keep your automobile (as long as you do not have significant unexempt equity in the vehicle).

The additional upside is that the lender will continue to report your current, on-time car payments to the credit bureaus; this will help boost your credit score much faster after bankruptcy. That way, if you need to trade the car in after a year, your credit score will have bounced back and improved to the point you can replace the car with a new one at a respectable interest rate.

If you want to reaffirm the auto loan, your bankruptcy attorney will make the arrangements with the lender and the court. Your ability to continue to pay the loan must be supported by the income and expense information in your bankruptcy schedules.

Redeem the Auto Loan

If you want to avoid losing your car, truck, or SUV when you file Chapter 7 bankruptcy, you can also buy it outright. If you have access to the cash (i.e., a friend or family member is willing to give or loan you the money after your bankruptcy filing) and the value of your car is larger than the amount owed on the loan, this can be an attractive option.

This option is only available for automobiles used for personal, family, or home purposes. And, payment must be completed in full. Redeeming the loan requires court approval. Your bankruptcy attorney would file the motion to redeem, and the auto lender is immediately notified. If and when the court grants the motion, the lender cannot refuse to accept the payment. Shortly after the payment clears, you will receive the title free and clear. This is a general overview of the redemption process and you should speak with your bankruptcy attorney to learn more about how the vehicle redemption process in bankruptcy may work for you.

Auto Loans in Chapter 13 Bankruptcy

In fact, Chapter 13 Reorganization Bankruptcy provides you with a few interesting alternatives and options not available in Chapter 7 bankruptcy. You have the option of continuing to make payments according to the existing terms of your loan or restructuring the loan and incorporating it in your Ch. 13 payment plan. If you were behind on your car payments when you filed the Ch. 13 bankruptcy case, your past-due payments can also be incorporated into the payment plan. If you took out your auto loan more than 910 days before filing bankruptcy and the vehicle is worth less than what you owe on the loan, you can “cram down” the balance to the vehicles current market value and pay it off in your Ch. 13 bankruptcy plan. You can even reduce your interest rate if you are currently paying a high rate of interest on your vehicle.

We Can Help You With Your Bankruptcy and Vehicle Ownership

Contact the Bankruptcy Attorney Emil Fleysher at 888-886-0020 to schedule a free consultation to learn more about how filing for bankruptcy affects vehicle ownership and to find out how you can keep your car, truck, or SUV, in the bankruptcy process.

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