The word “Bankruptcy” scares people. In my 15 years of practice, I have been astonished at the myths, legends, and out-and-out lies, believed about bankruptcy. Some of the biggest worries that I come across involve the fear of losing your car. “Will the court take my car? How will I get to work? I love my car!” The short answer is, “you can keep your car,” but as with most things in the law, it’s a little more complicated than that.
What if I have a car payment?
Common sense tells us that it is better to have your car paid off than it is to carry a car payment. In just about every time in your life that will be the case, EXCEPT in bankruptcy. When you file for bankruptcy, your assets (stuff you own) and your debts (who you owe) become very important. If you own a $20,000 car and have no car payment, you have a $20,000 asset. If you own a $20,000 car, but you owe $18,000 on it, then you have a $2000 asset. Why is this important? Well, when you file for bankruptcy you are only allowed to keep a certain amount of assets. How much can you keep? It depends on where you live. Different states have different “asset limits.” Just know that if you have a car payment, there is a very good chance that you owe more than your car is worth. In that case, you have a car worth nothing to the bankruptcy court. If you are willing to keep making the payments, you can keep your car.
What if my car is paid off?
I am not sure where the myth, “in bankruptcy, everyone gets to keep a car for work,” came from. I have heard it for years and it is just as wrong today as it was the first time I heard it. Believe me, if your “car” is a 1968 Pontiac GTO in perfect condition, and you do not owe any money one it, the bankruptcy court will not just let you “keep it for work.” It is an asset that the bankruptcy court will be interested in. So can you keep it? Remember, you are only allowed to keep a certain amount of assets when you file for bankruptcy. The answer is “yes,” but it may cost you. You may have to “buy back” your car from the bankruptcy court, either in a lump sum or in payments over a period of time, but it is possible to keep your car.
What if I am behind in my car payments?
If you are behind in your car payments, but you want to keep your car, bankruptcy might be a perfect solution for you! A Chapter 13 Reorganization (a type of bankruptcy) will allow you time to get caught up on your car payments. The bankruptcy court prevents the lender from attempting to repossess your car or file a lawsuit against you. So often, people are afraid to file bankruptcy because they believe that they might lose their car. Quite often, bankruptcy is a great way to save your car! See 11 U.S.C. § 1302.
What if I owe more than my car is worth?
You might be able to lower your interest rate owed on your car loan. You also might be able to reduce the amount owed on your car from the amount of the loan to the amount your car is actually worth. For example, if you owe $10,000 on a car worth only $3000, you could potentially only pay $3000 to pay off your car. See Till v. SCS Credit Corp., 541 U.S. 465, 2004.
How can I learn more?
You have a lot of options when it comes to bankruptcy. Finding the right attorney is crucial, as your family’s money, assets, and future could be at stake. I have been helping clients navigate the waters of bankruptcy since 2002 and our firm will always offer a no-cost consultation, either in person or over the phone. If you are wondering how the bankruptcy laws might affect your particular situation, you should call me at 727-344-0123 or email me directly at email@example.com.