How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
At Bankrate we strive to help you make smarter financial decisions. While we adhere to stricteditorial integrity, this post may contain references to products from our partners. Heres an explanation forhow we make money.
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.
Impact Of Chapter 7 On Your Vehicle
If you are filing for bankruptcy under Chapter 7, you may be able to keep your car by using the exemption for it. Most states provide a bankruptcy exemption of a certain amount for a vehicle. If you are no longer making payments on a car, and it has no equity beyond the exemption, you can protect it entirely. On the other hand, people who are still making payments on a vehicle will need to decide whether keeping it makes sense in their situation. They may choose to surrender the car rather than trying to keep up with payments. If you notify the court that you will surrender your car, this will get rid of your car loan.
Some people need to choose between Chapter 7 and Chapter 13, which can involve evaluating many factors. If your car is an important factor, you can read more here about what might happen to your car under Chapter 13.
You May Like: What Does A Car Battery Do
Contact Our Lawyers About Property Liens And Bankruptcy
At the Sasser Law Firm, we are committed to helping individuals and families make the best use of bankruptcy law when it is appropriate and helpful.
The bankruptcy lawyers of Sasser Law have more than 20 years of experience helping people navigate and overcome financial setbacks. Contact us today to set up a free consultation about how we can assist you.
This post was originally published in August 2019 and has been updated for accuracy and comprehensiveness in August 2021
Surrendering Your Car In Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, walking away from a car that you are still making payments on is relatively simple. You list the lender on your filing statement and check the box that indicates that you intend to forfeit the vehicle. If you do this, you will not be responsible for the car loan after you are discharged from your bankruptcy.
Likewise, if you are leasing a vehicle before filing for Chapter 7 bankruptcy, you will be permitted to walk away from your lease contract.
You May Like: What Is Gap Insurance For A Car
Lying About Your Assets
Chapter 7 bankruptcy includes a means test, a requirement that you disclose all of your assets and income, which determines your capacity to pay off creditors. If you purposely leave out assets or income, trying to help your qualification, your case could be dismissed. You could also be banned from filing on those debts ever again. Eventually, a bankruptcy trustee will have access to your financial records, so its unlikely your deception will go unnoticed. You shouldnt try to hide any creditors, either, because credit-card companies have centralized and computerized information. They will all know you have filed for bankruptcy protection. Bottom line: Tell the truth.
Can I File Bankruptcy And Keep My Car Loan
Its completely reasonable to wonder will filing bankruptcy affect my car loan? and what happens to my car when I file bankruptcy?
Rest assured that due to Texas exemption, your car will most likely not be repossessed, and you will be able to claim the maximum amount of value of the car if you decide to sell it off. You may also redeem or reaffirm your car loan, better options for rebuilding your credit, and being in a better financial position when bankruptcy is through.
Recommended Reading: What Speakers Fit My Car Best Buy
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.
Making Changes To Your Bankruptcy Forms
Your bankruptcy forms are signed under penalty of perjury. When you file, you’re declaring that the information in your bankruptcy forms is true and correct to the best of your knowledge. If you accidently leave something out or make a mistake, you’ll need to make changes to your forms.
This is done by filing an amendment with the court. You might need to file an amendment because you forgot to list an asset or a , you need to add information that was originally missed, you change your mind about signing a reaffirmation agreement, or the trustee requests that forms be amended.
Read Also: How To Remove Hard Water Stains From Car
What Happens After Filing A Chapter 7 Bankruptcy
Youve met with a bankruptcy attorney, reviewed all your assets, and decided that a Chapter 7 Bankruptcy is the right option for you. Now what? What happens after filing a Chapter 7 Bankruptcy? Find out what you need to know, and how your bankruptcy attorney can help.
This blog post will walk you through the steps of what happens after filing a Chapter 7 bankruptcy. It will cover the automatic stay on collections efforts and the trustees job in distributing your assets. It will also explain how having an experienced bankruptcy attorney can help you protect more of your property through careful use of exemptions.
Can I Keep My Car If I File Chapter 7 Bankruptcy In Georgia
Due to the lack of comprehensive public transportation and the distance between the suburbs and the city in the Atlanta metro area, many Atlanta residents who file;bankruptcy;are concerned about keeping their cars after filing bankruptcy under;Chapter 7;so that they can continue to work.
The good news is that you can keep your car if you file Chapter 7 bankruptcy. If you own a car and file Chapter 7 bankruptcy you have three possible options regarding your car: you can surrender the car; you can reaffirm the loan; or, under certain circumstances, you can redeem the vehicle. These options are available for debtors who still have loans on their cars. Debtors who own their cars free and clear may keep their cars, as long as the cars are not worth more than the exemption for vehicles in Georgia.
Surrendering the vehicle in bankruptcy is a relatively straightforward process. You return the vehicle to the creditor, and your obligation on the loan ends, along with your ownership of the car. You may allow the creditor to pick the car up at your home or make arrangements to drop the vehicle off at the nearest location for that creditor.
If you are considering filing for bankruptcy please consult a qualified attorney. For a free consultation please contact the;Law Offices of Charles Clapp;at 585-0040 or email;;for more information.
Don’t Miss: How To Remove Scratches From A Car
Are Bankruptcies Public Records In Texas
Are bankruptcies public records in Texas? Yes.
Chapter 7 and Chapter 13 individual bankruptcy records, Chapter 11 business bankruptcy records, and all related public bankruptcy filings are publicly-filed documents that can be located by anyone who signs up for an online account with the federal courts Public Access to Electronic Records system.
When Your Car Payments Are Not Current
If you have not kept up with your payments on a car, you may still be able to redeem the car if you can afford to do it. Alternatively, you can try to reach a reaffirmation agreement with the lender that will integrate the overdue payments. However, the lender has a right to take away your vehicle if you are not current on your payments when you file under Chapter 7, unless you can redeem the car.
You May Like: How To Change Title On Car
How To Renegotiate Car Loan Terms While Negotiating A Reaffirmation Agreement
You can start negotiating when you receive the reaffirmation agreement, or, if youd like to speed up the process, you can contact the lender as soon as you file your bankruptcy petition.
Dont worry that the bank might be put off when you ask for better loan termspeople regularly try to negotiate for lower rates. However, you should be aware that entering into a reaffirmation agreement is voluntary for both the lender and the borrower and that most reaffirmation agreements include the same conditions as the original loan.
Even so, a lender will agree to new terms, on occasionespecially if taking back the car will cause the bank to lose moneyso theres no harm in asking the creditor to do any of the following:
- forgive missed payments
- add or delete a co-signer, or
- change any other term.
Asset Cases Property Is Sold
If you do have non-exempt assets, these will be sold to satisfy part of your debt to your creditors. This property may be sold at auction to a third party. In some cases, you can also use your exempt finances to pay the cash value of important property, keeping it in the family after the bankruptcy is final. Then, whatever money is collected is divided among your creditors.
Sometimes, the trustee will have questions about your exemptions that require investigation or additional documentation. For example, the trustee may need to determine the current market value of your primary home to see if it falls within the exemption limits. In these cases, the trustee will report that information to the court and keep your case open until those questions are resolved.
You May Like: Car Shakes When Idle And Accelerating
Running Up Credit Card Debt
This wont work, either. The mentality of using your available credit before filing for bankruptcy will catch up to you. After receiving the bankruptcy notification, if the creditor believes you ran up your credit-card balance before filing, it can challenge the request to eliminate some or all of what you owe him. You could end up owing money on your credit cards, even after the bankruptcy is over. Usually, any credit purchases you make within 90 days of filing for bankruptcy are not included in the bankruptcy debts. You might have to pay your credit-card debt in full and creditors could accuse you of fraudulent borrowing. To be safe, once you choose to file bankruptcy, you should stop using the credit card.
Negotiating A Reaffirmation Agreement
If you can afford to make the payments and are sure that reaffirming the car loan is your best option, you will make this known on your bankruptcy filing statement. The lender will then send you an agreement that may be the same as or similar to your original loan contract. At this point, you may be able to negotiate a better deal.
The lender knows that you have the option to surrender the car and assume no liability. This will usually cause them to lose money, so it is in their best interest to negotiate. Ideally, you will want to request that the principal of the loan be reduced to the vehicle’s current value. If the lender will not agree to this, you might want to give up the car and let the bankruptcy eliminate your liability.
Read Also: What Happens When You Refinance A Car
Find Out How To Keep Your Car Under Chapter 7 Or Chapter 13 Bankruptcy
Filing for bankruptcy doesn’t mean that you’ll have to give up your car. But it’s not a given that you’ll be able to keep it either. Being able to retain your vehicle in bankruptcy depends on the amount of equity, whether you can continue paying the loan , and the bankruptcy chapter that you choose to file.
What If The Bankruptcy Exemptions Are Insufficient To Protect My Car
If your Exemption is not high enough to protect all of the equity available in your car, your car may still be protected.
Depending upon the amount of equity above the exemption amount, the Trustee may elect to abandon his or her interest in your car anyway, if the leftover amount is relatively small. This is because the Trustee will have to incur expenses to sell your car. If the cost of selling your car, plus the exemption amount, will not yield any money for creditors, it is unlikely the Trustee will want to sell your car.
For example, if the equity in your car is $5,000 and the available exemption totals $4,500, it is not likely the Trustee will sell your car to realize $500, given the cost to sell the car.
Read Also: How Does Bluetooth Work In A Car
How Do I Renegotiate My Car Loan In Chapter 7 Bankruptcy
If youre paying for your car with monthly payments, filing for Chapter 7 bankruptcy will cancel the contract, along with other contracts for goods and services, such as your credit card agreement, your gym membership, and cable TV.
But, if you dont want to give back the car, youll likely have to enter into a new contract called a reaffirmation agreement. You can ask your lender for new car loan terms when negotiating the agreement .
This article explains the reaffirmation agreement that youll discuss with your lender if you want to keep a financed vehicle.
Telling The Lender You Want To Renegotiate Your Car Loan
When you file for Chapter 7 bankruptcy, youre required to tell your car lender what you plan to do with your financed car on the Statement of Intention for Individuals Filing Under Chapter 7 bankruptcy form. Your creditor will receive notification of your choice after you file the form with the court.
On the statement of intention, youll indicate whether you want to keep the car or let it go back to the bank. If you want to keep it, youll select one of the following three options:
- surrender
- reaffirm , or
- redeem .
When you check the reaffirm box, your lender will send you a reaffirmation agreement with the original terms of your car loan.
If youre paying for your car with monthly payments, bankruptcy will cancel that contractbut giving back the car may not be what you want, especially if the car is essential for work, school, or family commitments.
Don’t Miss: How To Change The Interior Of Your Car
How Chapter 7 And Chapter 13 Bankruptcy Differ
Chapter 7 and Chapter 13 bankruptcy proceedings offer different approaches to getting relief from unmanageable debt.
Chapter 7 bankruptcy is a liquidation. Under its provisions, the individuals non-exempt assets can be sold off to raise money to pay off debts. Certain property is exempted from liquidation. If the North Carolina exemptions are used, a debtor is permitted a $3,500.00 motor vehicle exemption. Having a lien on your car can shield it from liquidation since that lien reduces the equity in the vehicle.; Chapter 7 allows the debtor to discharge certain kinds of unsecured debt.
Chapter 13 bankruptcy is a reorganization. It is also known as a wage earners plan because, under Chapter 13, people with steady income propose a plan to pay all or a portion of their debt over a period not to exceed five years. There are limits to how much debt an individual can have and qualify to file a Chapter 13 bankruptcy.
Learn About Exemptions Reaffirmation And More To See If You Can Keep Your Car
By Cara O’Neill, Attorney
Keeping a car in Chapter 7 bankruptcy is a top priority for almost all filers. Your ability to do so will depend on:
- the vehicle equity
- the exemptions available to you to protect it
- if you’re current on your payment, and
- whether you can stay current after bankruptcy.
Learn more about property in bankruptcy.
Recommended Reading: What Type Of Car Do I Have
What Happens To Your Credit Score After Filing Bankruptcy
Chapter 7 bankruptcy and Chapter 13 bankruptcy filings show up on your credit report. How long it shows up depends on which type of bankruptcy you file. Chapter 7 bankruptcy stays on your credit report for 10 years after the filing date. A completed Chapter 13 bankruptcy stays on your credit report for 7 years after the filing date, or 10 years if the case was not completed to discharge.
As a result, filing bankruptcy will initially lower your credit score. How much your credit score will drop depends on how high or low it was before bankruptcy. Generally, a decrease between 100 to 200 points can be expected.
The good news is that you can begin rebuilding your credit as soon as your bankruptcy discharge is entered. It’s possible to have a better score within 1â2 years of filing. The credit scores of most bankruptcy filers are already lower because of missed payments. After the court grants a discharge, most unsecured debts are erased. Credit scores improve because there are no more missed payments and discharged accounts show a zero balance.
After Chapter 7 and Chapter 13 bankruptcy is filed, you will get credit card offers in the mail. These offers can be for secured credit cards, sometimes called prepaid cards, which require a cash deposit. Or, offers can be for unsecured credit cards, but will likely have high interest rates or annual fees.
