Keeping Your Car in Chapter 7 Bankruptcy

June 30, 2012 by  Filed under: Bankruptcy 

For many people who have lost their jobs, taken the advice of banks offering shady loans, or simply gotten over their heads in debt, filing bankruptcy is the best decision. Most people choose a Chapter 7 bankruptcy, which can eliminate medical bills, credit cards, payday loans, parking fees, utility bills and some specific types of personal loans. Chapter 7 does come with some risks, however.

How Chapter 7 Bankruptcy Works

This form of bankruptcy requires you to liquidate your assets, including vehicles, and use any money from the liquidation to pay your creditors. This means that if you have a home with existing equity, a functional business, or any other asset you’d like to keep, you should look into other forms of bankruptcy filing. If you have few to no assets left and are struggling to meet your regular living expenses, this type of filing may be right for you.

Chapter 7 and Your Car

In most cases, filing Chapter 7 bankruptcy will cause you to lose your car, as it is considered an asset, but there are cases where this isn’t true. If you are no longer making payments on your car and the value of the vehicle is lower than the exemption amount in your state, your car is not considered an asset for the purposes of liquidation. If you are still making payments or your car has a value higher than the exemption amount, things get more complex.

If you’re still paying for your car, it’s important to make sure you never fall behind on the payments. By skipping payments, you increase the risk of losing the vehicle. Just making all your payments as usual may not be enough, however. You will need to either purchase the car outright at its current value through a process called redemption or enter into a reaffirmation agreement with the lender for your vehicle.

This agreement allows you to keep your car under roughly the same terms as the original loan. Rarely, you may be able to get the lender to allow you to keep the car without a reaffirmation agreement by paying your car payments on time. This is referred to as a ride-through option and should be discussed with your Chapter 7 bankruptcy lawyer.

State Exemptions

The allowable value of your paid-for car varies significantly by state. For instance, in Alaska, you can choose an exemption for up to $3,900 of one vehicle as long as the total value of the vehicle is not more than $26,000. In California, your car is exempt only if it is worth less than $2,725. In Colorado, your car is exempt if you use it to get to work and it is worth $5,000 or less. If you are disabled or a senior citizen, this value rises to $10,000. The many variations of these laws are why it’s so important to discuss your exemptions with a Chapter 7 bankruptcy lawyer.

Reaffirmation Agreements

If you do decide to use a reaffirmation agreement, you will need to negotiate with your lender. You or your Chapter 7 bankruptcy lawyer will need to call the lender and ask for the loss mitigation department. If the lender says you do not need a reaffirmation agreement, remember that they can repossess the car if you default on your payments. If the lender requires a reaffirmation agreement, you should remember that you may be able to get even better terms than your old agreement simply by asking for them. All agreements must be reviewed by a judge before they become legal.

If you have been convicted of a DUI in Michigan you need a chapter 7 bankruptcy troy or a chapter 7 bankruptcy sterling heights to help you through the process. You should consider Bloomfield Law Group. We have over 20 years of experience in Michigan fighting cases just like yours. You can visit our site today and learn more about DUI criminal proceedings.

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