Cars and Bankruptcy
For many people, especially in California, their car is one of their most important and necessary possessions.
If you prefer to keep your car when filing for bankruptcy, we can help you evaluate your options. In most cases, we are able to assist our clients with retaining their vehicles by using the allowable bankruptcy code exemptions.
Car Loans in Chapter 7 Bankruptcy
If you are financing a vehicle, you have several options for your car loan when you file Chapter 7 bankruptcy.
1. Retain: There are 2 possible scenarios for retaining (keeping) your car in a Chapter 7 bankrputcy:
Reaffirmation. A reaffirmation agreement is a contract between you and the lender in which you agree to pay the balance owed on your car loan, despite the bankruptcy filing. When you reaffirm a car loan, you agree to continue to make payments, and your car loan is not discharged in bankruptcy.If you do not make your car payments after you reaffirm the car loan, the car lender can report the delinquency on your credit report, repossess the car, and sue you for the deficiency balance. For this reason, the decision to reaffirm your car is an important one. You are not required to reaffirm your car loan when you file for bankruptcy, but you have the option to do so. As part of our service, our bankruptcy attorneys assist clients with determining whether reaffirmation is in their best interest.
Retain without Reaffirmation. This option is not available to everyone, however, some lenders will allow you to keep your car without signing a reaffirmation agreement, so long as you stay current on your payments. This depends on each individual lender's policy regarding the handling of car loans in bankruptcy. The advantage of this option is that if you default on your payments after your car loan is discharged in your Chapter 7 bankruptcy, your car can be reposessed, but with no deficiency and no adverse consequences to your credit. Our bankruptcy attorneys can provide you more information on how this works.
2. Redeem: In Chapter 7, you have the right to purchase (" redeem") your car from the lender by making a lump sum payment equal to the car's fair market value.
The U.S. Bankruptcy Code requires that you pay the creditor the replacement retail cost of the car. The balance of the debt will then be eliminated when you receive your discharge. Our Orange County bankruptcy attorneys will advise you on your options for redeeming your car.
3. Surrender: If you cannot afford the monthly payments on your car loan or if you simply do not wish to keep it, you eliminate the debt in your Chapter 7 bankruptcy by surrendering the vehicle to the creditor.
Car Leases in Chapter 7 Bankruptcy
If you are leasing your car when you file Chapter 7 bankruptcy, you can choose to either continue making the monthly lease payments or surrender the car back to the creditor. If you surrender the leased car, the debt will be eliminated in your Chapter 7 bankruptcy case.
Car Loans in Chapter 13 Bankruptcy
If you have fallen behind on your car payments, you may be able to file a Chapter 13 bankruptcy to stop the repossession of your vehicle. The amount you have to pay for your car in a Chapter 13 bankruptcy depends upon when you bought your car.
910 Claims: If you bought your vehicle within 910 days of filing your bankruptcy case, you must repay the entire car loan, however, the interest rate you pay on your car loan may be reduced.
Cram Down: If you bought your car more than 910 days before you file bankruptcy, you will only have to repay an amount equal to the present value of the car. For example, if you owed $5000 on a car that is worth only $2500, upon filing Chapter 13 you would be required to repay the finance company only $2500 over the three-to-five year term of your Chapter 13 repayment plan.
Car Leases in Chapter 13 Bankruptcy
Car leases generally cannot be paid through a Chapter 13 bankruptcy repayment plan. In a Chapter 13 Bankruptcy, you have the option to either "assume" the lease and continue making the monthly payments or "reject" the lease and return the car to the creditor.
If you return the car to the creditor, the creditor will sell the leased vehicle, apply the sale proceeds to your lease balance, and then file a claim in your Chapter 13 bankruptcy case for the lease deficiency. This deficiency is an unsecured, non-priority claim, which means you will likely only pay that creditor pennies on the dollar for any deficiency.
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We Can Help
If you are facing a financial crisis, consider ALL your options before considering bankruptcy. CONTACT an Orange County Bankruptcy Attorney at the Anaheim law offices of Nicastro Piscopo today for a FREE consultation.
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We are a debt relief agency. We help people file for bankruptcy relief and have been doing so for over 16 years.
