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Keep or Surrender Your Car – That is The Question.
Most every bankruptcy filer in a Chapter 7 or Chapter 13 bankruptcy in Michigan is able to keep their car when they file for bankruptcy if they want to. Some people don’t want their car anymore. Maybe it is worth less that what is owed or the interest rate and payments are too high. Maybe it is a lemon and needs repair. The first decision is whether to keep or surrender the car. If you decide to give it back to the lender, any deficiency or amounts owed will be discharged in your bankruptcy. If you don’t want the car or can’t afford it, give it back.
Reaffirming the Car Loan
If you want to keep the car, most (but not all) lenders require the debtor sign a reaffirmation agreement. Reaffirming the debt keeps the contract going and, after the bankruptcy is over, the debt remains. If you fail to make payments and the car is repossessed, you are on the hook.
Redeeming the Car
Redemption is when the debtor pays the lender the retail value of the car in a lump sum. If the redemption amount is less than the amount owed, the unpaid balance of the loan is discharged. There are some lenders that offer redemption loans to do this. If the debtor and the lender are unable to reach an agreement on the retail value of the vehicle, a judge will decide it after a hearing.
How Much Equity Can You Have?
If your car is paid off or is worth more than what you owe, you must protect the equity by using a motor vehicle exemption. In Michigan, a bankruptcy filer may protect up to $3,675 in one motor vehicle when using the federal exemptions. If you need more, you can use any unused amounts of your wildcard exemption. A good bankruptcy lawyer will help you maximize your exemptions. A vast majority of our clients discharge all of their debt while keeping all of their things.
Chris McAvoy is a Michigan attorney who helps people with bankruptcy, divorce, and estate planning. To find out more or set up an appointment, click here for contact info. 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
