Will I Lose My Car in Bankruptcy?
Bankruptcy can give you a fresh financial start, but it has some nasty side effects you should know about before filing. One concern many clients have is whether they will lose their vehicle if they file for bankruptcy. Without a car, it can be very difficult to get to work and meet family obligations, so this is a legitimate concern. However, there is no answer that applies to every situation. Instead, you should consult with a bankruptcy attorney to analyze your situation.
Will You File Chapter 7 or Chapter 13?
Consumers typically choose between these two chapters, which impact what happens to your property in different ways. In a Chapter 7, you can wipe out most of your unsecured debt, but the bankruptcy trustee can sell your property and distribute the proceeds to your creditors. For this reason, a trustee can sell your car and distribute the equity to creditors.
Equity is the amount of value you have in the car that exceeds the amount you owe on the vehicle. For example, if your car is worth $4,000 but your car loan is worth $3,000, then $1,000 remains in equity. If your car has no equity in it, then the trustee will not sell it because there is no equity to distribute to creditors.
By contrast, the trustee does not sell property in a Chapter 13. Instead, the debtor comes up with a repayment plan that lasts 3-5 years. At the end of the plan, any unpaid unsecured debt gets discharged.
How Much Is Your Car Worth?
As mentioned above, your car might not have any equity in it, which should protect it if you file a Chapter 7. However, Florida also provides exemptions which allow you to protect some equity.
For example, Florida statute 222.25 allows you to exempt up to $1000 in your motor vehicle. If your car is worth $4,000 and the loan is worth $3,000, then you can fully exempt the remaining equity, shielding it from the trustee.
You can also qualify for additional exemptions, depending on if you own your home and are shielding it from the trustee. For example, if you rent a home or are not claiming a homestead exemption, you can shield an additional $4,000 in anything you want, including your car. Many of our clients find that, once they add up all of these exemptions, they can shield all of the equity in their car.
Do You Really Need this Car?
Your car loan is probably secured by the car itself, and your car lender’s lien will survive bankruptcy. This means you will still need to make car payments if you want to avoid repossession. Some of our clients find that they cannot continue to make car payments even after bankruptcy, so they choose not to reaffirm their car loan. Although you probably can’t get a car loan immediately after bankruptcy, you might be able to save enough to buy a decent used vehicle.
Consider Your Options with a Bankruptcy Attorney
At Nowack & Olson in Plantation, we help consumers navigate the bankruptcy process, offering advice tailored to their particular circumstances. If you are worried about whether you will lose your car in bankruptcy, contact us.