Can I Keep My Car in Bankruptcy?

We discuss this question every day. Next to our homes, our cars are our most precious material asset. We need them.

I need my car

The fear of car loss is enough to keep some people from even inquiring about the possibility of filing bankruptcy. In most cases, you keep your car – even multiple cars – in bankruptcy while getting rid of the other debts you don’t want.

The Bankruptcy Court knows you need your car

The whole idea of the Bankruptcy Code is to provide a fresh start to the “honest but unfortunate debtor.”  And the law and Court know that a car is an absolute essential for most of us.  To do so there are generous exemptions that protect cars and other essential items of property, up to certain values, from being liquidated by a bankruptcy trustee.

Cars can be exempted and kept

The fresh start from bankruptcy comes from exemptions.  Most vehicles are completely exempt.  You keep them.

Don’t do something you will regret

Don’t give away your car before filing a bankruptcy.  It is exempt only if you are the owner when you file.  The bankruptcy trustee will undo the gift and, without exmptions, the trustee will get it back and sell it and give the money to your creditors.  Don’t make that mistake!

Car Redemption

One attractive but rarely used option for those who are upside down on their car loans – as most borrowers are – is to “redeem” the vehicle in a chapter 7 case by paying the lender the fair market value of the car and discharging the balance. But this requires a lump sum payment to the old lender.  Hard to do.

Chapter 13 cramdown

Another option is Chapter 13.  If the car loan was taken out more than 910 days before the filing of the bankruptcy case, the loan can be modified so that the principal is reduced to the current retail value of the car and is paid over a three to five-year period at an interest rate that presently stands at 5.25 percent. No lump sum needed.

Even newer car loans can often be modified in a chapter 13 bankruptcy to reduce high interest rates to the current court-set rate of 5.25 percent.

You can reaffirm or try to retian and pay

For those borrowers who simply want to keep paying for their cars under the original loan terms the Code allows that. In a chapter 7 case, however, Code changes made in 2005 allow the lender to repossess the vehicle if the borrower does not sign an agreement reaffirming the car loan. Signing a reaffirmation agreement means that the reaffirmed amount will not be discharged in the bankruptcy case.  It requires careful consideration.

Room for negotation

Sometimes, we negotiate a reduction in principal or interest rate as a condition of signing a reaffirmation agreement. Some folks don;t want to sign a reaffirmation and take the chance that the lender will not repo so long as the loan payments are made on time.  This also requires careful consideration.  Timely payments help rebuild credit scores after bankruptcy.

You can always surrender the car and owe nothing

If the car is just too darn expensive then surrender it.  They take the vehicle.  They sell it.  You don’t owe a dime.

Think before you act

So don’t let your love affair with your car keep you from getting advice from an attorney about whether bankruptcy is right for you. With our thirty years of legal experience, we can help you escape high interest debts and get on the road to financial security.

Don’t go it alone- Get the advice you need!

Call us today at 808-585-1000 for a free no obligation consultation.

Dump the debt and get a fresh start.

The Law Office of Ed Magauran files bankruptcies from our Honolulu office on all the Hawaiian Islands, Oahu, Big Island, Maui and Kauai. Find out what we can do for you today!