A major concern of individuals who are thinking of filing bankruptcy is what happens to their property? For those who do not own homes or other real estate, their most valuable asset may be their car. What happens to your car in a bankruptcy?
To Reaffirm or Not
Many people have loans on their vehicles. Once you file for bankruptcy, your creditor will want to know if you plan to keep your vehicle or return it. If you do return it, you may or may not be responsible for any unpaid amount due on your loan, called a deficiency balance, depending on if your state allows such judgements on repossessed personal property under certain circumstances. You may still be able to discharge the unpaid amount as an unsecured debt.
Most people wish to keep their car so they will sign and file a reaffirmation agreement that usually maintains the same monthly payments though you could modify the terms of it if your creditor consents. You are obligated under the terms of the reaffirmation agreement and can no longer walk away from this debt and will likely have to pay any deficiency balance if you are unable to make the payments.
In some cases, you can reduce your current balance owed on your loan to the fair market value and then obtain a new car loan that is less than the original. Usually, you must have owned the car for at least 910 days, but this rule may not be followed in every case.
If your car is paid for or you have considerable equity in it, then your vehicle is subject to your state’s prescribed vehicle exemption amount or the federal level. For example, California has a vehicle exemption of $5,100. This means that if you have equity in your vehicle up to $5,100, then you can retain it. California law also allows you to exempt more than one vehicle so long as their total equity does not exceed this amount. The vehicle and other property exemptions are updated periodically.
The Wildcard Exemption
Many states have “wildcard” exemptions that allows you to use the wildcard amount along with any other property exemption. For example, California has a wildcard exemption of $26,925. If you have an expensive automobile worth about $30,000, you can use both the vehicle and wildcard exemptions to retain your vehicle or vehicles.
If you still have questions or concerns about what happens to your property including your car during bankruptcy please call the DCDM Law Group and arrange a consultation with one of our attorneys. We’ll be happy to answer any of your questions.