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.
Understanding Chapter 7
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.
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Complete Guide To Chapter 7 Bankruptcy
What You Can Keep In A Chapter 7 Bankruptcy
Determining Whether You Can Keep Your Car During Chapter 7 Bankruptcy
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.
What Happens to Your Car if You Are Behind on Payments?
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.
Will You Keep Your Car If You Are Making Payments or It’s Paid Off?
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 the standard motor vehicle exemption to protect up to $5,000 in equity in your vehicle. Additionally, if you do not claim the homestead exemption, you have the option to combine the $4,000 wildcard exemption with the $5,000 motor vehicle exemption, allowing you to protect a total of up to $9,000 in equity in your vehicle.
This means that if you fully own the car and it is valued at less than $5,000, or if you have less than $5,000 in equity while making payments, you will likely be able to keep your vehicle.
Tip: 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.
Schedule a Free Consultation with a Chapter 7 Bankruptcy Attorney
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.
