This is a question we hear from almost every client we see. Individuals that have accumulated debt need to find relief from creditors, but need a vehicle to get to work, take care of children, etc. Other sections of our website reference the fact that you can keep your vehicle when filing for bankruptcy, but it doesn’t explain what all of your options are. This article will give you a little more information on this issue.
When our law firm files paperwork for a client, we are allowed to claim certain items of personal property as exempt. Claiming an exemption on personal property means that you are not required to sell it or turn it over to the court. These exemptions, however, have limitations. With respect to a vehicle, the exemption we are allowed to claim is limited to $3,650. This means that if you own your vehicle outright, the value of that vehicle cannot exceed $3,650. If it does, you will be required to “buy back” the equity you have in that vehicle. (Example: John has a car he owns outright that is valued at $5,000. In order for John to file Chapter 7 bankruptcy and keep his car, he would be allowed to claim $3,650 of his vehicle as exempt, and “buy back” the remaining $1,350 from the court.) The amount of time you will have to “buy back” the equity in your vehicle differs depending on the trustee you have, but most trustees will give you 6-12 months to set up a payment plan and pay off the balance.
If you are in the process of buying a vehicle, you will be able to continue paying on the vehicle, with some exceptions. When filing for bankruptcy, you are in essence telling the court that once you pay for your necessary expenses (rent/mortgage, utilities, food, car, etc.), there is no money left over to pay your unsecured creditors (credit cards, medical bills, payday loans, etc.). If you have a car payment that is $600.00 a month, the court would say that you are imposing an undue hardship on yourself. This means that you are making things tougher on yourself than they need to be. In this situation, the court would suggest that you turn in your vehicle. As long as your car payment is around $350.00 or less, the court would say that this is a reasonable expense and allow you to continue making payments on the vehicle.The Difference Between Chapter 7 and 13 Bankruptcy
If you are behind on your car payments and you want to keep you vehicle, Chapter 7 bankruptcy would not be an option for you. If you wanted to let the vehicle go, Chapter 7 bankruptcy would allow you to discharge the remaining balance due on the vehicle once you turn it over. However, if you want to keep your vehicle and you are behind on payments, you would be required to file Chapter 13 bankruptcy. Filing for Chapter 13 bankruptcy allows us to set up a payment plan for you that would not only catch up payments through the length of your plan (3-5 years), but also have the car paid off in full by the time you finish the bankruptcy.