You are thinking about possibly filing for chapter 7 bankruptcy in order to get rid your overwhelming debt. All of your old credit card bills, personal loans, and store cards have built up over time and your debt is becoming unmanageble. Filing for bankruptcy is a good option for you, but you are worried you might not be able to keep your car. Don't worry--this is a common misconception. Many people think that when you file bankruptcy, the court will take your car. However, this is not the case.
There are a couple scenarios that could arise concerning your car: (1) you have equity in your car; or (2) you don't have equity in your car (if you are still financing it).
Equity In Your Car
You might own your car outright, or you might have paid a large amount off your car loan already. Whatever the situation may be, you have equity in your car. If you are still financing your car, this means the car is worth more than the balance left on your car loan. In this situation, you will still be able to keep you car if you have enough exemptions to protect your car. (Read more about bankruptcy exemptions here). California has a $5,100 motor vehicle exemption that can be applied to any car. If you have a car that is worth less than $5,100 (using Kelly Blue Book private party retail value), you can use that motor vehicle exemption to fully and completely protect your car--you'll be able to keep it!
Let's say your car is worth more than the $5,100 exemption. In this case, you will use the motor vehicle exemption AND the wildcard exmpetion (up to $26,000) to protect your car. As a general rule of thumb, if your car is worth less than $25,000 it should be fully protected and you will be able to keep your car when you file bankruptcy.
No Equity In Your Car
If you are still financing your car and it is upside-down (meaning the fair market value is less than what you still owe on the loan), there is no equity in the car. In this situation, the court will have no incentive to take your car because they would not make any money by selling it. There is no need to use any exemption at this point because there is no equity. You'll be able to keep your car as long as you keep making your monthly payments.
A reaffirmation agreement is filed with the court for debts that you want to voluntarily reaffirm and keep after your bankruptcy. If you are financing your car, you can reaffirm that loan and continue making your monthly payments. The reaffirmation agreement will be sent to your attorney, who should review it and make sure the terms are agreeable. It is even possible to re-negotiate the terms of your loan at this point. Once the reaffirmation is filed with the court, it is like you have signed a brand new car loan. By making your monthly payment, this will help you quickly rebuild your credit. Just make sure to make the payment on time and in full every single month. Before signing a reaffirmation agreement, make sure to discuss the pros and cons with your attorney.
Filing for bankruptcy is a complex process, but hiring the right attorney will make the process much easier and stress-free. An experienced bankruptcy attorney will know how to use the legal exemptions to protect all of your personal property, including your car. Atlantis Law LLP has experienced bankruptcy lawyers and will never put your valued belongings at risk. Contact us today for a free consultation.