What happens to your car in Chapter 7 bankruptcy depends on your situation and the combination of scenarios that present themselves. Sometimes you can save your vehicle, others can’t. But, while you can save your car in bankruptcy, should you?
Chapter 7 bankruptcy is a short process that typically takes about four to six months. It is considered a liquidation bankruptcy, where your trustee sells your property to help pay off your creditors. Due to its short nature, some lenders are reluctant to work with borrowers who are in this process.
Once your bankruptcy is released, it is usually easier to qualify for a car loan. Your credit score also takes a hit during bankruptcy, so preparing for a bad credit car loan doesn’t hurt. Chapter 7 stays on your credit reports for seven to 10 years.
When it comes to keeping your car, your situation determines the options available to you.
If you own your car
If you own your vehicle for free, you should be able to keep it if it falls under your state’s exemption guidelines. The amount of value you are allowed to keep depends on your state and whether you choose to qualify for your state’s minimum exemption or the federal minimum exemption; Not all states offer you this choice, so be sure to check with your court-appointed trustee.
If your car is worth more than the amount you are allowed to exempt, you may be able to save it by combining a generic exemption with your vehicle exemption. If that’s not enough to cover the value of your vehicle, your trustee will likely sell your car and distribute the proceeds to your creditor to pay off some of your debt. If this happens, you usually receive the exemption amount that can be used to purchase an affordable vehicle.
If you have a car loan
If you have a loan on your vehicle, you usually have two options, but it may depend on whether you are up to date on your loan when you complete Chapter 7. The two options are:
- Redemption – To trade in your car, you must pay the full value of the vehicle in one lump sum. It is often not easy when you are bankrupt.
- Reaffirmation – To reaffirm your loan, you must live in a condition that allows it, or it must be indicated as an option in your contract. To reaffirm that you are entering into a new contract with your lender, possibly with different terms, and continue to make your payments throughout your bankruptcy.
If you are behind on your loan, you may not be able to use these options because your lender is not obligated to grant them to you if you have already defaulted on your loan. In addition, if you are able to reaffirm, be aware that any late or missing payment results in automatic repossession by your lender.
If you are renting a vehicle
If you are leasing a vehicle, you need to decide in advance whether you plan to keep the car or return it to the dealership. You have 30 days from the date of filing to complete your documents indicating your intention. You can choose to assume your lease or refuse your lease.
Assuming your lease means that you agree to keep it and make all of your lease payments throughout your bankruptcy. If you miss one, you forfeit the deal and your landlord can repossess the car.
If you decline your rental agreement, you return the car and are free from any liability and responsibility to make any payment once your Chapter 7 has been cleared.
Need another vehicle in bankruptcy?
If you need a vehicle during your Chapter 7 bankruptcy, you must get permission from your trustee. It may be easier to get an inexpensive vehicle for cash, but if you can wait until your bankruptcy is discharged, you won’t need court approval to take on more debt and you may have -be easier to obtain a car loan.
Even during Chapter 7, there is still a chance that you can finance a vehicle, as long as you work with the right kind of lender. Finding a special financial dealer who works with bad credit borrowers after bankruptcy is probably the way to go. We know how difficult it can be to find a dealer to work with difficult credit situations, so we want to make your search as smooth as possible.
TO Auto Express Credit, we have assembled a national network of Specialty Finance Brokers who are registered with subprime lenders. These lenders work with borrowers who have little or no credit, or who have already filed for bankruptcy on their credit reports. To get started in finding the car you need, simply complete our quick, free, no-obligation auto loan application form, and we’ll do the rest!