How to keep your car in Chapter 7 bankruptcy is an extremely common question. Many times, individuals rely on their automobile to get them to work and take care of basic necessities such as grocery shopping and doctor visits. Massive debt and wage garnishments can cause it to be difficult to stay current on your automobile loan and so it’s not a surprise that individuals worry that by filing Chapter 7 bankruptcy, they will lose their car. If you own your automobile and its value is below your bankruptcy exemption amount, you are at no risk of losing your vehicle and will be able to keep it when filing for Chapter 7 protection. If you are still making monthly payments on the car however, it could be a different story.
Keeping Your Car in Chapter 7
If you are caught up on your car payments, one way to ensure you keep your car in Chapter 7 bankruptcy is to either pay a lump sum to purchase the car at its current value or enter into a reaffirmation agreement, which is essentially a new contract. This will allow you to keep your automobile under similar terms to your original agreement although you may be able to negotiate better terms. If you are not current on your payments you lose some leverage since your lender doesn’t have to renegotiate, but the best way to keep the car is to get the lender to sign a reaffirmation agreement. There are pros and cons to reaffirmation agreements, so make sure you discuss this with your Houston bankruptcy attorney before signing a new agreement with your automobile loan provider.
How Do Reaffirmation Agreements Work?
As previously mentioned, a reaffirmation agreement is a new agreement made between a creditor and the debtor that waives discharge of a debt that would otherwise be dischargeable in a pending bankruptcy proceeding. Keep in mind that the bank would much rather settle the amount and get a lump sum payment versus repossessing the vehicle so don’t be afraid to ask for a better deal. Once you and the lender come to terms, you must file this with the bankruptcy court and get it approved by a bankruptcy judge. Your bankruptcy lawyer can also approve the reaffirmation agreement for you as long as the new payment doesn’t create a hardship for you, and thus will allow you to avoid attending a reaffirmation hearing.
Redeeming an Automobile in Chapter 7 Bankruptcy
When you agree to make one lump sum payment to the trustee for the value of the car, this is known as redemption, and can be an effective strategy for minimizing your debt using bankruptcy. The key to redemption, assuming you have enough to make the payment, is that you pay the total amount of the value of the car despite the loan balance you owe. Therefore, if you owe more than the car is actual worth according to fair market value, you effectively discharge the difference.
Not only can retaining a bankruptcy lawyer help you get your bankruptcy petition approved, but they can also help you keep your vehicle while avoiding the need to attend reaffirmation hearings. Furthermore, a seasoned bankruptcy expert will have the experience to guide you through the process while allowing you to keep the maximum amount of what you own and discharge the most amount of debt.