Protecting Your Possessions with Bankruptcy

Filing for a Chapter 7 and 13 bankruptcy in Snohomish County can stop your car from being repossessed.

One of the first questions most people ask when consulting a bankruptcy attorney is whether they can keep their car in a bankruptcy. For most people, the short answer is yes.

So how does filing for bankruptcy in Snohomish County help keep your vehicle from being repossessed? There are two things to consider when answering this question. One is whether there is any equity in the car. Equity is the difference between the value of the car and the balance of the car loan. Cars that are paid in full have 100% equity. The equity in a car is an asset that can be taken to pay creditors but the law protects all the assets in most bankruptcy cases through exemptions. The exemption for a car is around $3,500.

In addition to the car exemption, you can stack a “wildcard exemption” on the car (or use it for another car). The wildcard exemption can be as high as $11,975. Married couples each get their own set of exemptions. Most people who file bankruptcy do not have newer cars or, if they do, they do not have equity in them.

Protecting your vehicle with Chapter 7 bankruptcy.

If you are still making payments on a car, you can keep it if you can continue making payments. In a Chapter 7, you have to keep making the same contract payment as always. The creditor will want you to sign a “reaffirmation agreement”. If you do not sign this agreement, the creditor can take the car back even if you remain current on the loan.

If you do sign the agreement and fall behind on the loan, you may be liable for any remaining balance on the loan after the car is repossessed and sold at auction. Basically, the reaffirmation shifts the risk of a default from the creditor to the debtor because, without a reaffirmation agreement, the debt is discharged though you still get the title to the car after the loan is repaid.

Stop your car from being repossessed with a Chapter 13 plan.

Another option is to pay a car loan through a Chapter 13 plan. This plan allows you to spread out the car payments over five years. Often this results in a significant reduction in your monthly car payment. If you purchased your car over two and a half years ago or the car loan was refinanced, you can “cram down” the loan. The crammed down loan is split between two portions – a secured portion based on the car’s value, which is paid at 100% with a lower interest rate, and an unsecured portion that is paid at the same percentage as other unsecured creditors, such as credit cards and medical bills.

A Chapter 13 plan will allow you to catch up on a car loan and remain safe from repossession over the entire term of the plan, as long as you stay current with your payments and keep the car fully insured.

If your car is repossessed before filing bankruptcy and sold, you may still owe a “deficiency balance”, which is the difference between the balance of the loan and the car’s value. This deficiency balance is an unsecured debt and is discharged in a bankruptcy.

Schedule your FREE consultation with an Everett bankruptcy lawyer today!

If you are concerned about protecting your vehicle from getting repossessed, call the knowledgeable Everett bankruptcy attorneys from our law firm that serve Snohomish County today. We provide a free consultation to answer your questions and to find out if bankruptcy may in fact be the best solution for you.

Do you have questions about bankruptcy and your vehicle? Our Everett bankruptcy attorneys have answers – call today:

(425) 249-7156