Linda Bal & Associates
A law firm dedicated to serving the greater Chicagoland area

Stop Repossession Of Your Vehicle

There are ways to keep your car when you file for bankruptcy. Your car loan and the type of bankruptcy you file for will determine which options you can choose. At Linda Bal & Associates, our bankruptcy attorney can help understand your options.

Bankruptcy courts realize that you need a car to get to work, care for yourself and loved ones, and for other necessary tasks. Therefore, they are reasonable about what you can keep. If you collect expensive vehicles, the trustee will likely need to sell them to cover your other debts. However, due to exemptions, a modest family car is usually safe throughout the bankruptcy process.

Chapter 7: Who Will Get The Car?

In Chapter 7 bankruptcy, your equity in your vehicle determines what can happen to it. It is important to remember that a lease does not give you equity in a car, which means that a leased vehicle is exempt from bankruptcy.

If you have equity that exceeds the exemption limit, the bankruptcy trustee might sell the vehicle. The trustee would likely give you the value of exempt equity back, perhaps to buy a cheaper vehicle, but use the amount that exceeded the exemption to pay for your debts. If you do not have equity, the trustee cannot liquidate your vehicle to pay for debts.

To keep the car when your equity in it exceeds the exemption limit, you may use other exempt assets to purchase the nonexempt portion of equity. This can allow you to shield your vehicle from liquidation.

However, you may still owe the creditor even if the trustee does not move to liquidate the vehicle. In this case, you may keep or negotiate the conditions of your original payment plan with the creditor, which is reaffirming the debt. Alternatively, you may choose to redeem the car, which means allocating your available resources to buy it outright at a fair price.

Paying For The Car Under Chapter 13

If you purchased your vehicle within 910 days of filing for Chapter 13 bankruptcy, you must repay your auto loan to keep the car. For example, if your loan had a balance of $6,000, but your car is only worth $3,000, you must still pay the whole $6,000 loan balance. This rule protects creditors by preventing debtors from “stripping down” the debt to match the value of the car.

If your car note is more than 910 days old, you may qualify for a “cram down” procedure where you only pay the current value of the car instead of the full amount of the loan. Even though this doesn’t discharge the debt, it could significantly reduce the amount you owe on the note.

Threatened With Car Repossession? Contact Our Firm Today.

If you are worried about losing your car to repossession, filing for bankruptcy could help you avoid that situation. For a free attorney consultation to learn more, please call 630-912-5970 or toll-free at 800-599-2152. You may also contact our firm online.

 

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Nation Association of Consumer Bankruptcy Attorneys
DuPage County Bar Association
Better business Bureau