We are often asked: Can I keep my car in bankruptcy? The answer is usually “yes.”
The first question to ask, however, is not whether the debtor can keep it but whether the debtor should keep it. Say you own a car in Centennial, Colorado that is worth $8,000. However, the note on the car is $13,000. Your best bet is probably to use the bankruptcy as an opportunity to get out from under this “upside down” situation and have the deficiency on the note discharged along with the rest of the unsecured debts.
Does it Make Sense to Keep my Car in Bankruptcy?
Let’s assume there is some equity in the car. The key issue is “how much?” You are entitled to a $5,000 exemption for your vehicle. If the equity is $5,000 or less, the trustee has no claim on the vehicle. If the equity is greater than $5,000 you will have an option in chapter 7. You can give the car to the trustee who will sell it and give you the first $5,000 in equity from the sales proceeds, or (and this is the option usually chosen) you can pay the trustee for the non-exempt portion. Say, for example, you have $6,000 in equity; you would have to pay the trustee $1,000. Trustees usually allow you to make this payment over some months. You will obviously need to stay current on your payments. If you do not, the car lender will likely obtain relief from stay and repossess the car.
Chapter 13 Bankruptcy and your Car:
In a chapter 13 bankruptcy the rules are different. You don’t have to pay for the “non-exempt” equity so long as the total amount of your payments meets the “liquidation test.” In other words, if the amount of your chapter 13 plan payments exceeds the amount of your non-exempt assets, your creditors have no right to complain. This is because the plan is in their best interests. They are getting more than if you liquidated your non-exempt assets and paid the proceeds to them.
Also, under chapter 13 you can keep the car even if you are behind on the payments at the start of the case. You can put the amount of the payments you have missed in your plan. And, so long as you make your plan payments and keep the note current going forward, you can keep the car.
We hope you we answered your question: “Can I keep my car in bankruptcy?” It is important to have a loyal ally on your side as you decide the best way to resolve your financial issues and get a new start. Barry Arrington has proven many times that he can successfully overcome the difficulties of filing a Chapter 7 or Chapter 13 Bankruptcy. Contact an experienced bankruptcy lawyer at 303-205-7870, or submit the “Get Help Now” form for answers to more specific questions.