If The Trustee Decides To Sell Your Car
In Chapter 7 bankruptcy, here’s what the trustee will do if there’s enough nonexempt equity in the vehicle to sell it for creditors:
- return the exemption amount to you
- deduct sales costs and the trustee’s fee, and
- distribute the remaining proceeds to your creditors.
Example 1. Suppose you own a car outright worth $5,000, and your state allows a $6,000 car exemption. You can fully protect the equity and keep your vehicle.
Example 2. Suppose you have $5,000 in equity, but your state only has a $2,000 motor vehicle exemption and no wildcard exemption. The bankruptcy trustee will sell your car and pay you the $2,000 exemption. The trustee will disperse the rest to creditors after deducting sales costs and the trustee fee.
Protecting Your Car By Filing Chapter 7
If the equity in your vehicle falls under the $5,000 car exemption amount, then the bankruptcy trustee cannot sell it to help pay off your debts. However, if the equity in your vehicle is significantly more than the exemption amount, it is likely that the trustee will sell your vehicle to settle your debts.
Its important to understand that if your vehicle is safe from the trustee, the lender of your car loan could still repossess it during or after the bankruptcy proceedings if the loan payments arent current.
What Happens To A Leased Or Financed Car In Bankruptcy
Bankruptcy in Canada deals with unsecured debts. If your car is financed, through a lease or car loan, then that debt is considered a secured debt.
If you lease or finance a vehicle and file for bankruptcy, you can keep your vehicle as long as you are, and remain, current on your car loan or lease payments.
Your car lender can, however, repossess your vehicle if you fall behind on your payments, and bankruptcy wont stop that.
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Negotiate With Your Lender During Chapter 7 Bankruptcy
If you need your car, don’t rely on this method. Your lender mightâbut probably won’tâbe willing to reduce your payments, interest rate, or even principal balance. But that’s not to say it’s not worth a try. However, keep in mind that you’ll sign a reaffirmation agreement and remain personally liable for the car loan despite your bankruptcy discharge.
You Can Keep Your House And Other Property But Only If
In every Chapter 7 case a Trustee is appointed. Part of the Trustees job is to liquidate any assets for which he/she can obtain money to pay creditors of the bankruptcy estate.
Thus, for example, if you have a car that is worth $20,000 and you owe $10,000, absent any other considerations, the Trustee would likely sell that car.
Fortunately, however, there is this thing called exemptions which protects a certain amount of value in your various assets.
Each state has its own set of exemptions, and there is also a federal set of exemptions as well.
How do you know whose exemptions apply in your case? Read my page on bankruptcy exemptions.
So, if the applicable exemptions laws in your case allow $10,000 for a vehicle, then youre safe from the Trustee selling it!
Similarly, if the car was worth $20,000 but you owed $30,000 on it, you would not need to use any exemptions to protect it because there is no value to protect .
Same thing with a house or any other type of property.
But It Can Get Tricky
There are times when you may be able to remove liens from your house or other property, such as judgment liens.
Doing this, of course, can affect the equity in the asset in question and lead a to the Trustee seeking to sell that property.
Knowing how to properly value your assets is obviously important in determining whether there is a risk of the Trustee selling it.
So is knowing which exemptions apply and how to correctly apply them.
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Do I Get To Keep My Car In A Chapter 7 Bankruptcy
The question of whether or not you can keep your car in a Chapter 7 bankruptcy process is a very common one.
Unfortunately, as is so often the case with bankruptcy matters, the answer is, It depends.
Normally, in a Chapter 7 bankruptcy, your goal is to wipe out your unsecured debt. It is not necessarily always also the case that you want to slide out from under a burdensome vehicle loan, although this is sometimes true.
Many are concerned that, if they file for bankruptcy, they will lose a needed vehicle, leaving them unable to commute to work, get to doctors appointments, shuttle kids back and forth to school, and to attend lifes other necessities.
The fear of losing a car can cause people to hold off on even having an initial conversation with a bankruptcy attorney.
It is important, first of all, to not be alarmed. Fear should not prevent you from exploring your legal options.
In a typical Chapter 7 bankruptcy case, most people do get to keep their carsif they want to.
However, whether or not you can will depend, firstly, on whether you are still making payments on the car or whether your own it free of any title-encumbering lien.
Keeping A Car In Chapter 7 Bankruptcy By Reaffirming The Car Loan
Many lenders will let you keep a car after bankruptcy as long as you’re current on the payment and continue to make the payment after the case ends. The lender will give you the title when you pay the amount due under the discharged contract.
This arrangement works well because if the car breaks down or is in an accident, the filer can stop making payments and give the vehicle back to the lender. However, without a contract in place, the payments aren’t reflected on the filer’s credit report, and the lender can repossess the car at any time.
Filers who don’t want to risk losing the vehicle can sign a new contract called a “reaffirmation agreement.” Although you might be able to convince the lender to agree to better terms, you should assume they’ll remain the same because the lender isn’t obligated to modify the loan. Therefore, while signing a reaffirmation agreement can help you keep a car in Chapter 7 bankruptcy, it isn’t a tool you should rely on if you’re behind on your payments.
Learn more about your car in Chapter 7 bankruptcy.
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Factors The Trustee Will Consider When Determining If Someone Has An Equitable Interest
It’s common for family members to drive each other’s cars without owning them, so the fact that your daughter drives the vehicle won’t be enough to establish an equitable interest. Count on the trustee to examine additional facts by asking questions such as:
- Where is the car usually parked or garaged?
- Who makes the car payment, and what address does the billing statement go to?
- Who pays for repairs and vehicle maintenance?
- Can the debtor with legal title use the car when needed, or is permission from the equitable owner necessary?
- Does a contract or document provide for equitable interest, such as a divorce decree or trust agreement?
- How long before the bankruptcy filing did the equitable owner possess the car?
The more your daughter controls the car by spending time and money on it, the more likely the trustee will find she has an equitable interest in it.
Repair Your Credit Fasterif You Go Bankrupt Keeping Your Car Loan Could Help
While this article is just a quick overview of some of the ins and outs of bankruptcy, if youre thinking of going bankrupt, you have a car loan, and you want to keep your car, keeping up the car loan payments through your bankruptcy and after it will help to improve your credit. Bankruptcy is one of the worst things you can do to your credit, and it takes many years for your credit to recover. However, if you have a debt like a car loan that it is being paid as agreed and it keeps reporting on your credit report during and after your bankruptcy, this will help to rebuild your credit more quickly after the bankruptcy.
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Secured And Unsecured Debt
Bankruptcy court courts looks at debt two different ways. Secured and unsecured.
Secured debt is a debt that has a lien against a piece of your property. Typical examples of secured property are a mortgage against your house or a lien on your car title.
Unsecured debts are typically credit cards, and collection accounts.
The reason why most bankruptcy filers get to keep their house or car is that the debt is secured and there is very little equity. This give us a chance to use the bankruptcy rules to your benefit.
What Happens To My Car During Bankruptcy
Filing for bankruptcy is a serious decision that can damage your credit for seven or 10 years, depending on the type of bankruptcy. But if you’re drowning in debt you can’t pay, it can serve as a last resort to help you hit “reset” on your finances.
There are two main types of bankruptcy: Chapter 7, which liquidates some of your assets, and Chapter 13, which focuses on repaying debts. What happens to your car in bankruptcy depends both on the type of bankruptcy you file and how much equity you have in your vehicle.
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What Happens To My Car If I File Bankruptcy
Very few people who declare bankruptcy in Canada lose their vehicle. You need your car to get to work, so losing your vehicle is not an option. All provinces have laws that exempt one car or truck worth up to a certain dollar limit from seizure by the trustee. To find what happens to your car after you file bankruptcy, we look at two key questions:
The first question that you will be asked is what is your car worth? To determine this youll need to have the vehicle appraised. Most trustees will accept an independent value of opinion that is, the opinion of someone who is qualified to sell cars or value cars, that is not related to you or a friend, that is willing to write out a letter indicating what they believe the fair market value of your car is. Fair market value is the amount that someone would pay for your car.
The second question will be is your car financed or do you have clear title to your car? Clear title means that there are no liens or other claims to your car. A lien is the technical term for pledging your car as security for a debt. In other words, is your car financed, leased or has another creditor placed a secured charged against your vehicle.
If you file bankruptcy, there are options that can allow you to keep your vehicle no matter its value. You can also choose to keep, or hand back, a leased or financed vehicle depending on what makes the most sense for you financially.
Need Another Vehicle During Bankruptcy
If you need a vehicle during your Chapter 7 bankruptcy, you have to get permission from your trustee. It may be easier to get an inexpensive vehicle for cash, but if you can wait until your bankruptcy discharge, you won’t need court approval to take on more debt and may have an easier time getting an auto loan.
Even during Chapter 7, there’s still a chance that you can finance a vehicle, as long as you’re working with the right type of lender. Seeking a special finance dealership that works with bad credit borrowers after bankruptcy is likely the way to go. We know how difficult it can be to find a dealer to work with tough credit situations, so we want to make your search as smooth as possible.
At Auto Credit Express, we’ve gathered a nationwide network of special finance dealers that are signed up with subprime lenders. These lenders work with borrowers who have little to no credit, or who have past bankruptcy on their credit reports. To get started toward the car you need, simply fill out our fast, free, no-obligation auto loan request form, and we’ll do the rest!
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Understanding The Basics Of Bankruptcy
While Chapter 7 bankruptcy rules may differ slightly by state , however, the requirements are generally the same. The worries are also similar in nature. For instance, many people worry if they will lose all their belongings, including their cars, motorcycles, vans, clothes, etc. However, there are exemptions to the kind of assets or personal property that one can lose when they file for Chapter 7 bankruptcy.
States have motor vehicle exemptions that determine how you can protect your vehicle. There are also special strategies at your disposal that can ensure you keep your car. However, these exemptions work if you own the car 100%. If the car isnt yours fully i.e., you are still making loan repayments, havent met your loan repayment obligations, or have attached the vehicle as security for a loan, you wont be able to keep your car.
The main factors determining if you keep your car include
Finding A Bankruptcy Lawyer
The best place to find a great bankruptcy lawyer is through the National Association of Bankruptcy attorneys or the National Association of Consumer Advocates . These not for profit organizations are comprised of attorneys who devote their life to helping consumers get a fresh financial start through bankruptcy.
There are other low cost or no cost alternatives available, but these places will treat your case as a commodity and you will not get a great result.
Best of luck to you in getting a great financial start!
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Need More Bankruptcy Help
Did you know Nolo has been making the law easy for over fifty years? It’s trueand we want to make sure you find what you need. Below you’ll find more articles explaining how bankruptcy works. And don’t forget that our bankruptcy homepage is the best place to start if you have other questions!
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Can I Keep My Car If I File Bankruptcy
In most cases, individuals or families who file for Chapter 7 bankruptcy can keep their assets, including their cars. Many states, including North and South Carolina, offer exemptions for motor vehicles. This allows each adult to keep their vehicle, assuming that:
- The equity in the vehicle is under the exemption amount.
- They own the car outright or are current on payments.
- They make a payment arrangement before filing for bankruptcy.
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The Chapter 7 Bankruptcy Estate
To better understand how an exemption in bankruptcy works, we have to take a step back. When a person files for bankruptcy, a trustee is assigned to their case. All the interests in any kind of property that the debtor owns houses, cars, clothing, bank accounts, lawsuits, websites, collectibles, insurance policies, etc. all become property of this hypothetical estate of the debtor that is managed by the trustee. At the time of filing a chapter 7 bankruptcy case, then, all of that property, in theory, belongs to the trustee. When you claim an exemption in the case, you are, in effect, declaring that the law protects that property, and pulling that property out of the hypothetical bankruptcy estate.
Keeping A Car Thats Not Paid Off
First, if youâre close to having it paid off, there is a good chance you have at least a little bit of equity in the car. In this context, equity is calculated by subtracting the current loan balance from the carâs value. As long as the equity is less than the exemption amount , your bankruptcy trustee canât touch your car.
About your car loan
Chapter 7 bankruptcy is not a way to get a free car. If youâre still making payments on a car loan, you havenât paid for your car yet and the only way to keep the car is to pay for it.
Redeem the car by paying only how much itâs actually worth
One way to do this is through a redemption, where you pay for the car’s current value in a single payment, no matter how much you owe. If that sounds like an option for you, here’s where you can learn more about how to redeem your car.
Is paying a lump sum to redeem your car not possible? You have other options!
If you’re like most, you probably don’t have access to that kind of money right after your bankruptcy filing. That is where reaffirmation agreements come in.
Reaffirmation Agreement Basics
A reaffirmation agreement allows a bankruptcy filer to keep their car by preventing the car loan from being discharged. They exist, in large part, to protect banks and credit unions after a Chapter 7 bankruptcy. Here are some details about the process of reaffirming a car loan.
If you were facing repossession, a reaffirmation may not be the way to go
Keep the car, keep the debt
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Wages Benefits And Retirement Accounts
Wages that you earned before your filing date but won’t receive until after filing your case are usually only partially protected. Any post-bankruptcy earnings are completely exempt in a Chapter 7 filing.
Welfare benefits and retirement accounts are almost always protected Ã¢â¬â but only if you list them on your paperwork. Social Security, unemployment benefits, 401, disability benefits, veteran benefits, etc., are all protected by federal law. That said, if you have a lot of money saved in any of these accounts, it might be wise to talk to an attorney.