People file for bankruptcy for their debt to be discharged. However, there are rules that govern every bankruptcy process regardless of type. In chapter 7 bankruptcy, for instance, one of the rules for being eligible is showing that you don’t have assets capable of covering your debt. For this reason, it is understandable why anyone would want to know if they will keep their car in Chapter-7 bankruptcy. Below is a detailed answer.
Understanding The Basics Of Bankruptcy
While Chapter 7 bankruptcy rules may differ slightly by state (i.e., rules in places like Austin, TX aren’t exactly the same as those in New York), however, the requirements are generally the same. The worries are also similar in nature. For instance, many people worry if they will lose all their belongings, including their cars, motorcycles, vans, clothes, etc. However, there are exemptions to the kind of assets or personal property that one can lose when they file for Chapter 7 bankruptcy.
States have motor vehicle exemptions that determine how you can protect your vehicle. There are also special strategies at your disposal that can ensure you keep your car. However, these exemptions work if you own the car 100%. If the car isn’t yours fully i.e., you are still making loan repayments, haven’t met your loan repayment obligations, or have attached the vehicle as security for a loan, you won’t be able to keep your car.
The main factors determining if you keep your car include;
I. State Exemptions
Every state has exemption statutes on property protection during bankruptcy. You can find all Texas exemption statutes here. In regards to vehicles, Texas is generous. The state allows individuals filing for Chapter-7 to keep the entire value of one car for every licensed household member. However, a car can still be exempted for a household member who doesn’t have a license if the person in question relies on another person to operate the car for them.
Generally, if you have one car and you live in Austin TX, or anywhere else in Texas, you won’t lose your car if you file for Chapter-7. However, individuals with more than one car are only entitled to one. You also need to take more action i.e., include the vehicle in the $50,000/$100,000 cap for Personal Property Exemption.
Texas allows you to keep property which you show you need to continue working and providing for your household. A car per household member with a license qualifies as exempt property.
However, there may be special circumstances where a person may be able to keep multiple cars. To understand these circumstances in-depth, you must consult a seasoned Austin Bankruptcy Attorney.
II. Car Value
Besides exemptions, the value of your car is a determining factor. Chapter-7 bankruptcy paperwork requires a person to state the current fair value of assets like a car. Vehicle fair values account for the age and condition of a car. This information is readily available on auto dealer websites. However, bankruptcy trustees appointed by a bankruptcy court to oversee the process favor specific websites offering certified printouts of a vehicle’s value.
In many cases, you will only be allowed to keep a car based on the exemption amount in your state. For instance, if your car is worth $6,000 and the state exemption is $8,000, your car is safe.
III. Equity In A Car
Assuming you took a car loan that you haven’t repaid completely on a car worth $20,000. If you owe $10,000, you have $10,000 equity only in the car. In such an instance, you can protect the car if you qualify for a $10,000 exemption. In a nutshell, the trustee can’t sell your car in Chapter-7 bankruptcy because your motor vehicle exemption is adequate to protect the entire equity of the car.
If your car is worth 15,000 (without a loan) and your state exemption is $5,000, the trustee is supposed to sell the car, minus the $5,000 exemption and sales-related expenses leaving the remaining amount to creditors.
IV. Other Scenarios
Trustee actions: The question “can I keep my car in Chapter 7” can also be answered by looking at other scenarios that dictate the outcome. For instance, trustee actions can dictate the fate of your car. Some trustees abandon cars if the cash won’t be there for creditors. If nothing remains after the trustee pays off your car loan, cost of sales, and takes their commission, the trustee can abandon the car.
For instance, if your car is worth $7,000 only, a significant amount won’t remain for creditors after making typical deductions. Trustees make these assessments and decide when it is worth the effort to take your car.
Buyback: You can also be allowed to keep your car if you buy it. Trustees can give you this option if your car is nonexempt property. This usually applies when you wish to keep your car. A deal can be negotiated between you and the trustee to pay a certain amount. It is also possible to get a payment plan.
Wildcard exemption: You can go to great lengths to keep your car. If an exemption won’t help you and you can’t buy back the car, there are states with wildcard exemptions that can be used to protect some property. Federal law can also be used. However, this option should be left to legal experts. Generally, it is possible to show how a car is modest and critical to your survival to be allowed to keep it.
Reaffirming a car loan: It’s also possible to keep your car when filing for Chapter-7 bankruptcy if you have your car loan restructured or sign a new car loan. Provided you honor the agreed repayments, you can keep your car. However, this option is up to a lender. Your car loan provider isn’t obligated to restructure your car loan or give you a new loan.
Yes! You can keep the car during a Chapter 7 Bankruptcy. But you need to understand state exemptions and other dynamics discussed above. If it’s not clear whether you can keep your car, seek legal advice. You need a seasoned bankruptcy attorney in Austin TX, to utilize all options available to you for keeping your car.
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