All About Cars And Chapter 7 Bankruptcy
Bankruptcy is intended to give us a fresh start and allow us to be able to renew our financial lives. But that’s really hard to do without a car, especially in South Florida. What good is a bankruptcy, if you have no car when it’s over to get yourself to work and make money? Thankfully, bankruptcy has special provisions that allow consumers to protect and keep their vehicles.
Bankruptcy allows debtors a $1,000 exemption in their vehicles. But that’s $1,000 in equity or value. For many people, if the car is financed, the car may have no equity (that is, it may not be worth much more than what is still owed on the loan).
Remember that cars are valued at their current market value. For many of us, with cars that may be old, or need repairs, or which may have been in an accident in the past, or which have cosmetic damage, the value of our cars is much less than what we think it is.
And even if you have a bit more than $1,000 in equity in your car, it is unlikely that the trustee will take the car anyway. The costs of taking, storing, advertising, and auctioning the car would quickly eat up any value the trustee would realize from the car.
You also have a personal property exemption that ranges from $1,000-$4,000 (the higher number is if you don’t have a homestead, the lower is if you are claiming a homestead exemption). That personal property exemption can be added to the $1,000 vehicle exemption to protect your vehicle from being taken.
And if all that isn’t enough, those exemptions double if you are married and are filing jointly.
Reaffirming the Loan
If you do have a car payment, bankruptcy gives you the option of “reaffirming” the loan—that is, the loan will survive the bankruptcy and won’t be discharged but the lender must allow you to keep your vehicle. The court must approve your reaffirmation, which it usually does so long as it is not a large loan, and you are not significantly “upside down.”
Means Test Benefits
One good thing about owning a car when you file for bankruptcy, is that your car payment makes it easier for you to qualify for the means test. The means test is an income test that you must “pass” in order to be able to file for Chapter 7 bankruptcy.
Your car payment is “deducted” from your income, making your total income less—that makes it easier for you to pass the means test. For debtors who are right at the edge of being able to qualify for Chapter 7, your car payment is what could end up allowing you to file.
Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 for advice about what you can expect in your bankruptcy case.