Do you even want to keep your car?
Before we figure out if you can keep your car, you need to determine if you even want to keep it. Bankruptcy gives you a fresh start and you can get out of bad decisions like that high interest car payment in to which you rolled negative equity. If you car is worth far less than what you owe, maybe it’s time to give it back to the creditor and walk away from. Bankruptcy is a great way to get out of a car loan and you not owe the lender a dime.
You can file for bankruptcy and keep your car.
When you file for bankruptcy, you must list all of the property you own. This includes your car. But just because you own a car, that doesn’t make it an asset. An asset has value. If your car is worth less than what you owe, then your car is not an asset. You can value your car at the NADA website. A Chapter 7 Trustee is not going to seize your car and sell it to give all the money to the secured lender. If your car is worth less than what you owe, you can keep it if you want.
If you car is worth more than what you owe, it is an asset. Assets are protected by using bankruptcy exemptions. Federal bankruptcy exemptions currently allow you to have up to $3,775 in equity in your car. If your equity exceeds that, you can use up to $1,250 of the wildcard exemption plus $11,850 of any unused homestead. Don’t worry, it’s not as complicated as it appears at first. The bottom line is virtually all of my clients that want to keep their cars can. We will let you know if you don’t have enough exemptions to cover all of your property before you file your Chapter 7.
Reaffirming your loan.
If you have a loan, most lenders will require that you reaffirm the debt. A reaffirmation agreement reinstates the original loan contract. By signing a reaffirmation agreement, you agree to assume the personal liability that your bankruptcy would otherwise discharge. If you fail to make your payments after your Chapter 7 is final, your car will be repossessed and you will likely be sued for the deficiency. Once the reaffirmation agreement is signed, you are back on the hook for the loan.
Have more questions? Give us a call at 313-291-0240.
Chris McAvoy is a Michigan attorney who helps people with bankruptcy, family law, and estate planning. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City, Canton and the Downriver, Michigan area.