For most Americans, owning a car is not just convenient, but an absolute must in order to get to work and school and to take care of other responsibilities. If you’re in debt to the point where you can no longer make ends meet and are considering bankruptcy, you may wonder what it will mean for your vehicle. You may be worried about losing your car, or if your car payment is high, you may look forward to getting rid of that debt. With all chapters of bankruptcy, it may be possible to keep your vehicle, whether it’s paid off or not. We’ll work together to make sure you’re always informed about your options and the consequences of each decision we make throughout the bankruptcy process.
What Happens to my Car?
If you own your car outright, the value will determine if you can keep the car or not. If it’s worth less than the allowed automobile exemption, you’re in no danger of losing it during bankruptcy. Even if the car is worth a bit more than the exemption, the trustee will often choose to “abandon” it and allow you to keep it. If, however, the car is worth much more than the exemption, the trustee will allow you to either pay the difference between its value and the exemption in order to keep it, or surrender the car and allow the trustee to sell it. The court will give you the exemption amount, which you can use to buy another vehicle, if you’d like.
If you owe money on an auto loan, you’ll need to decide if it’s best to keep the car or to surrender it. We’ll inform the court of your decision by submitting a “Statement of Intention” or SOI. We’ll look at your overall circumstances together to decide if the payments are reasonable for your new budget. If they are not, it may be best to include the vehicle in your bankruptcy SOI and make an alternative plan for transportation.
Making a New Start
If we decide that keeping your car is reasonable, you’ll need to stay current on your payments and insurance during the entire bankruptcy process and beyond. An alternative to the payments would be “redeeming” the vehicle by paying a lump sum of the current value. If you’ve been making payments for some time and still owe more than the car is worth, this could save you significant money in the long run. Unfortunately, most people who are filing bankruptcy usually don’t have access to large amounts of money, which keeps redemption from being an option. In these situations, the lender may allow you to keep making payments as usual until the vehicle is paid off, or they may require or give you the option of signing a reaffirmation agreement. This allows you to negotiate new loan terms, such as the interest rate, monthly payments, and possibly even the balance owed. The court trustee will evaluate this agreement to ensure that it’s in your best interest; if it’s not, the trustee could reject it. This is most likely to happen if you owe significantly more than the car is worth. Not signing the agreement protects you from negative consequences of a future default, such as being responsible for the difference between the balance of the loan and the value of the car.
Thinking of losing your car can be scary, but there are several options available to help you make a new start with the resources you need to succeed. While I can’t guarantee that you won’t experience losses during your bankruptcy, I can help you make the best decisions to protect as much of your property as possible.