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May a person keep their car is he or she files bankruptcy? 

 

In a Chapter 7 bankruptcy, in general, you can keep your car or vehicle under certain conditions.

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If you own the vehicle free and clear:

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If you own the car "outright" or "free and clear" (that is, there is no loan against the car), you can keep the vehicle if:

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The value of the vehicle is low enough so that it is exempt (legally protected) from liquidation (being sold by the bankruptcy trustee and using the sale proceeds to pay creditors).  In most cases, the vehicle will not be liquidated; in other words, in most cases, the debtor can keep the car.

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Note: Allowable exemption amounts vary greatly in different states.  Further, different factual scenarios may create different amounts of exemption protection.  In California, there are two different sets of exemption statutes to choose from.  


-If car or vehicle was purchased on time and has a loan balance:

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If your car or vehicle was purchased on time and has a loan balance, you can keep the vehicle if:

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1.  You keep making payments;

2.  You maintain insurance on the vehicle; and

3.  The vehicle's equity value (that is, the vehicle's current value minus the loan balance) is low enough so that it is exempt (legally protected) from liquidation (being sold by the bankruptcy trustee and using the sale proceeds to pay creditors).

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In most cases, the vehicle will not not be liquidated.

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Note: Allowable exemption amounts vary greatly in different states.  Further, different factual scenarios may create different amounts of exemption protection.  In California, there are two different sets of exemption statutes to choose from.  

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How do I keep my car if I file for Chapter 7 bankruptcy? 

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If your car or vehicle was purchased on time and has a loan balance, you have several options:
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A. Redemption: By redeeming the car, a person keeps the car by generally paying one lump sum for the car.  The lump sum amount is either the current value of the vehicle or the balance owed, whichever is less.  

B. Reaffirmation:  By reaffirming a debt, the debtor and lender agree to continue under the terms of the existing loan or, in some cases, modify one or more terms of the original loan.

C. Retain and Pay / Ride Through:  Utilizing this method, the debtor simply remains current on the loan obligation and continues to make monthly payments but does not sign any reaffirmation agreement.

"Retain and pay" is no longer a recognized option for personal property under the bankruptcy code.  But some bankruptcy debtors still attempt to “retain and pay” anyway.  Further, many (but not all) creditors will voluntarily agree to allow this retain and pay option.

D. Return (Surrender) the Car: You may voluntarily return (surrender) the secured merchandise to the creditor.

Which option above is best to utilize?  The answer to that question depends on various factors such as, for example, the value of the vehicle, the loan balance amount,  the debtors ability to pay the loan debt, and the debtors and creditors willingness or lack thereof to agree to proposed terms. 

For a free and confidential consultation, contact southern California bankruptcy attorney  Matthew B. Tozer.

Copyright 2009

 Disclaimer

Under the new bankruptcy laws, Mr. Tozer is a debt relief agency because he helps people file for bankruptcy relief under the Bankruptcy Code.

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