Keep Your Car In Chapter 7 Bankruptcy

The US bankruptcy laws provide you an option to keep your car in chapter 7 bankruptcy. Depending upon the kind of factors involved in your specific case, the process however can be a little complicated. There are plenty of things that are taken into account by the court in order to determine whether you should be allowed to keep your car. As part of the process of bankruptcy under chapter 7, you get an opportunity to discharge most of your debts but you also lose most of your assets and properties. The bankruptcy trustee appointed for your case sells off most of your properties in order to pay off the creditors from the proceeds thus received. However, there are also provisions for property exemptions that provides you an opportunity to keep a particular asset or at least get the equivalent amount of exemption in cash. Whether you will be able to keep your car or not depends on your ability to continue making the payments without making any further default. Following is a brief rundown on how to go about it.

Can You Financial Afford The Payments

If you want to keep your car in chapter 7 bankruptcy, the first thing you have to do is to determine whether you will be able to afford the payments on your car loan, particularly if the car is financed through a creditor. You will have to provide proof of income in the court; you will have to convince the judge that despite your bankruptcy, you will still have enough regular income sources to ensure timely payments toward your car loan. You can maximize your chances of winning the court’s approval by preparing a well-planned proposal. Create a budget plan by having a close look at your finances. See how much money is left every month after paying down the regular monthly expenses, such as utility payments, rent payments, grocery bills, and other such things. Considering the kind of situation you are in, you are probably already overstressed. Therefore, if you are unable to do the calculations yourself, you can consider hiring a credit counselor.

Look At The Exemption Limit And The Current Outstanding Balance On Your Car

You can keep your car in chapter 7 bankruptcy if the exemption limit covers the value of the car, which rarely happens. Therefore, you will have to do a thorough analysis on how much equity value you own on your car, the current value of the car, how much outstanding balance is still due in your name, and how much exemptions are allowed on it. If the current value of the car is $12500 only but you still owe $18000 on it, it does not make any sense to keep that car. Even if you file a motion in this regard, the court is quite unlikely to entertain such requests. If that is the case with you, you are advised to surrender the car. However, the situation is quite the opposite, such as where the current value of the car is $18000 and you owe $12500 on it, you can go ahead and file your petition with a proposal, explaining how you are going to ensure timely payments.

Keeping The Car Through Redemption

If you want to keep your car in chapter 7 bankruptcy even if you still owe a substantial amount on it (more than its current value), you are recommended to consider redeeming the car. As part of the process of redemption, you have to request the creditor to resell the car to you at the current market value. This way, you will be required to pay as much as the car is worth, which sounds like a fair deal. However, the redemption of car is usually possible when you are financially capable enough to pay off the current market value of the car in full through a one-time payment.

Signing A Reaffirmation Agreement

In general cases, where the current market value is much higher than the amount you actually owe at present to the creditor, you may be able to sign a reaffirmation agreement with your car loan lender, as per which, you will be allowed to keep your car in chapter 7 bankruptcy provided you continue making the payments as per the original repayment plan. When this agreement comes in place, you will obviously not be able to discharge the car loan debt. If because of any reasons you fail to make the repayment in a timely manner in future, your lender can sue you for this or take other debt collection actions, such as repossession of the car. Here, it is also very important for you to keep in mind that if you are already several months behind on your car loan payments, your creditor is very much unlikely to sign a reaffirmation agreement with you.

Overall, though there is no guaranteed way to keep your car in chapter 7 bankruptcy, there are still several options available out there for you. You will have to do a thorough analysis to determine which option can work the best in your specific case.

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