Your car is a necessity for getting to and from work, running errands, or making sure your kids get to school and doctor’s appointments. So, if you file for Chapter 7 bankruptcy, what happens to your car? Whether you get to keep it depends on a variety of factors, but our team of bankruptcy attorneys in Florida is breaking down what you can expect and how to plan for the future.
Chapter 7 is a type of liquidation bankruptcy designed to help people with no disposable income get out from under certain types of unsecured debt, like credit cards and medical bills. Your debts are tallied and a trustee then goes through your valuable, non-exempt assets and sells them to pay off creditors. Anything left over after the liquidation is discharged, and you no longer make payments nor can creditors continue to pursue payment.
During the Chapter 7 process, if you are behind on your car payment, the repossession process will be paused. During this time, you can surrender your car back to the lender and your debt that you owe can be discharged as a non-secured loan.
If you don’t choose to voluntarily surrender your vehicle, let’s look at the scenarios that determine whether you will be able to keep your vehicle or if you must surrender it.
If you are behind on payments, and you have no way of catching up, as we mentioned above, you may want to consider returning it to the lender. Once the bankruptcy process has ended (or sooner if the lender obtains permission from the bankruptcy court), the involuntary repossession process can begin again, so surrendering it to the lender may reduce fees and help reduce stress.
On the other hand, if you’re one or two payments behind, and filing for bankruptcy will let you catch back up, call your lender and let them know when they can expect a payment.
If you have maintained good standing with your lender and are continuing to make payments, whether you keep your car or it’s taken in the bankruptcy depends on how much equity you have in the vehicle.
In Florida, you can claim up to $5,000 in property exemptions during Chapter 7 toward a vehicle if you don’t own your home. This means that if you own the car outright and it’s worth less than $5,000 or you have less than $5,000 in equity while still making payments, you will most likely get to keep your vehicle. If you own a home, you can only claim up to $1000 of exemption towards the equity in your vehicle.
Check the Kelly Blue Book or NADA value of your vehicle, subtract the balance you still owe on the car loan and, if it’s worth more than $5,000 or you have more equity, your car will be sold to pay off creditors or you’ll be given the option to pay its non-exempt equity. Working with a bankruptcy attorney can give you a better idea of whether or not you’ll keep your vehicle.
At Stiberman Law, we have helped countless clients in South Florida, including Miami, Fort Lauderdale, and Boca Raton, navigate the challenges of bankruptcy and emerge in a stronger financial position for the future. Let us help you achieve financial freedom, too by scheduling a free consultation. Call (954) 922-2283 or fill out the form below to get started.
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