Options for your Vehicle when Filing for Bankruptcy
If you owe a debt on a vehicle, filing for bankruptcy under Chapter 7 in Lafayette, Indiana gives you a narrow choice:
- Keep it and pay on the contract
- Surrender it and owe nothing.
The Bankruptcy Trustee Only Cares about Equity Beyond Any Exemption
In a Chapter 7 bankruptcy case, you are not the only one who is interested in your vehicle. A bankruptcy trustee cares about any equity (the value over the amount you owe on it) your vehicle may have. However they only care if the amount is more than what is protected by the vehicle exemption. There is almost never too much equity if you still owe on the car, but still check with your attorney and see if this is going to be an issue for your case.
Surrendering a Vehicle to the Lender
You may not want to keep your vehicle because you simply cannot afford to make the payments or doing so is just not worth the alternatives. Or you may only be a couple payments behind, and rushed to file your Chapter 7 bankruptcy case to stop your vehicle from being repossessed. Only now realize hanging on to the vehicle is no longer a feasible option for you.
It’s likely that if you just surrender your vehicle without a bankruptcy, you’ll most likely owe and be sued for the “deficiency balance”. A deficiency balance is the amount you would owe after your vehicle is sold. The sale price is credited to your account along with all the repo and other costs, that balance is often much higher than you expect. The Chapter 7 bankruptcy will almost always write off that deficiency balance.
Keeping Your Vehicle
If you want to keep your vehicle, generally you must be current on your loan or be able to get current within 30 to 60 days after filing Chapter 7 bankruptcy. You will most likely be required to sign a reaffirmation agreement, which legally excludes the vehicle loan from the discharge of the rest of your debts. You have to sign that reaffirmation agreement and have it filed at the bankruptcy court within 60 days after your bankruptcy hearing, meaning you have to be current a few weeks before then. Now you have to stay current if you want to keep the car, as if you had never filed for bankruptcy. Along with that, if that vehicle gets repossessed later or surrendered, there is a good chance you would owe a deficiency balance. So talk with your attorney and think carefully about the risks before reaffirming your vehicle loan.
The Lack of Other Alternative Usually
You are almost always stuck with the terms of your original loan contract if you want to keep your vehicle, especially with conventional, national vehicle loan creditor. You can’t reduce the balance of the loan, the interest rate, or the monthly payment. If you’re behind, you almost always have to pay the arrearage and be current on payments within a month or two. There can be exceptions, especially with local finance companies that would rather minimize their losses by being flexible. So be sure to talk with your attorney about your vehicle creditor and their history. If you need more flexibility and have to keep your vehicle but owe more than it is worth, and can’t afford the payments, ask about Chapter 13 as a better solution.
Chapter 7 Bankruptcy
Usually “straight bankruptcy”, Chapter 7, is the best way to go if your vehicle situation is pretty straightforward:
- You want to surrender a vehicle
- You want to hang onto your vehicle and are current or can be within a month or two of filing.
Have more questions? Feel free to call your Lafayette, Indiana bankruptcy attorney at the Law Offices of Brad A. Woolley. Call (765) 420-8900 today!