Will You Lose Your Car in Bankruptcy? Likely Not.
I’m often asked whether a car will be lost in a bankruptcy. More often than not though the answer is “no.” You’re not going to lose your car.
There are a couple of driving factors (see what I did there?) which influence whether you can keep your car after filing. Read on to find out!
First we need to consider whether the case is a chapter 7 or chapter 13 filing.
A chapter 13 allows debtors to keep all of their personal property. This includes cars, trucks, boats, ATV’s, etc. In return, the debtor agrees to repay a portion of their debt over a three-to-five year period. In short, there’s no issue with keeping the car provided that you’re current on the payments or can make up the past-due payments.
A chapter 7 requires us to consider the amount of equity in the car. If it’s above the exemption limit, then we may need to pay the trustee the difference. But if it’s not, or you owe more than it’s worth, then there’s no issue with keeping the car.Se
Second, how much equity is in the vehicle?
Let’s play with some numbers as an example.
Say you own a 2006 Nissan Pathfinder worth $6,000. It has a loan balance of $3,000. The difference ($3,000) would be your equity.
In Indiana, an individual is allowed to exempt, or protect, $10,800 worth of personal property. This includes equity in vehicles.
As long as the equity in the car, along with the value of your other personal property, stays below the $10,800 exemption amount, then there’s no issue with keeping the car.
Let’s change the numbers. Say the Pathfinder is owned free-and-clear. You now have $6,000 in equity. If your other property, including the equity in the Pathfinder, puts you over the $10,800 exemption, then we have to consider negotiating with the trustee to pay the difference in order to keep the car. Otherwise you may need to surrender it to the lender or let the trustee sell it.
This worst-case scenario sounds painful. But, keep in mind that paying a couple thousand dollars AND keeping your car may ultimately be worth shedding thousands in credit cards, medical bills, and other debt.
In the end each case is unique. This is where an experienced and dedicated bankruptcy attorney can help walk you through the analysis and help you determine your best course of action. If you’re ready to take the next step and getting back to the life you want to live, contact me at (317) 830-5993 or email me.