Second only to the fear of losing your home is losing your car. Most people cannot live without their vehicles to get to work, school and the store and this one issue might be the one holding you back from making your financial fresh start. You should know that filing for a chapter 7 bankruptcy does not automatically put your car at risk of being seized, so read on to find out two ways your vehicle is protected.
The personal property exemption
If you don't already know about exemptions then it's worth your while to devote some research into how they work in your state. All states allow bankruptcy filers to take a chunk of the dollar value away from their property using exemptions. Homestead exemptions are directed at homeowners but there is another type of exemption that might protect your car. Some states have separate vehicle exemptions and some lump your car in with the general personal property or "wild card" exemption.
You might want to keep in mind that a chapter 7 filing has another name: the liquidation filing. The goal of the bankruptcy proceeding is not just to protect you from creditors but to allow those creditors to be paid any money that can be scrounged from the bankruptcy. The bankruptcy trustee has the right to seize your property, such as your car or home, and sell it. The proceeds are then provided to the creditor. The way exemptions work is that they allow you to reduce the value of a piece of property, such as your car, by the dollar amount of the exemption. Here is an example:
Your car is worth about $25,000 and you still owe $20,000 to the lender. If your state allows you to exempt at least $5,000 you can keep your car. What about including the auto lender in your bankruptcy? That is addressed by reaffirmation.
Reaffirmation to keep your car
Auto lenders can be included in your bankruptcy just like any other secured lender but you may not want to do so. You will be making an appointment for the vehicle to be towed away in the near future if you do include that debt and then fail to perform a reaffirmation on it. A reaffirmation is just a pledge that your payments on your vehicle are up to date and that you will continue to pay the debt as agreed. The opportunity to reaffirm your auto debt pays off in more ways than one. You won't lose your car as long as you make your payments and the debt will appear as positive on your credit report in spite of the federal filing.
Speak to your bankruptcy lawyer about how to keep your car through the bankruptcy process.