All About Cars in Bankruptcy
Cars are our lifeblood. They are how we get to work, and take care of our family. Especially in South Florida, where there is a lack of public transportation, getting a fresh start in bankruptcy doesn’t mean much if you lose your car in the bankruptcy. Here are some things that you should know about bankruptcy.
You get an exemption for $1,000 for your vehicle. That may not seem like much, but that’s $1,000 in equity. If your car loan is upside down, you have no equity, and will be able to keep the car, even without using the allowed exemption. If you owe $5,000 on a car worth $5,500, you only have $500 in equity, and thus only need $500 of the $1,000 exemption.
Additionally, you have between $1,000-$4,000 in personal property exemption which you can apply to your car. So in many cases, you’ll be able to keep (exempt) your car.
Your car is valued at the Blue Book value. There are a lot of online resources where you can get this value, but remember that these don’t always account for the uniqueness of your car. In other words, your car may not have a working air conditioner, or it may have been in an accident, or it may have worn, old tires, or have some other current or former problem, which lowers its value below what any online valuation tool tells you the car is worth.
Generally, the means test is how you know whether you make too much money to file for Chapter 7 bankruptcy. However, you get to deduct your car payment from what you make. This makes it easier for you to qualify for Chapter 7, even if you have a slightly higher income.
Discounts On Your Car
There is a little used part of the bankruptcy code which allows for redemption of a vehicle.
The most a lender could get if your car was taken in bankruptcy is the current value of the car—it wouldn’t get any interest on your loan. The bankruptcy code lets you pay the lender the same thing (the current value of the car, without any interest), and then keep the car.
This can give you a huge savings on your car. There’s one catch—you have to make the payment all at once. You can’t make payments on the redemption amount. But for debtors who don’t have a very valuable car, or have some way to make it work, it is possible to buy your own car at the current market value, no matter how much you would owe on your car loan.
Reaffirming the Loan
You also have the option of continuing to pay the loan, and keeping the car. The court will have to approve of the reaffirmation, and the debt—and your personal liability on it—will survive after the bankruptcy.
Make sure you have an attorney to help you with your fresh start after bankruptcy. Call the West Palm Beach bankruptcy lawyers at Kelley, Fulton & Kaplan at 561-264-6850 for help and guidance with your bankruptcy discharge.