Cars and Vehicles
If you qualify, filing for bankruptcy in Washington State will be able to help you stop your car or vehicle from being repossessed.
Get help, answers, and real information about what happens to your car when you file for bankruptcy here in Washington State.
Needless to say, your car is an important part of your overall financial picture. For many of our Washington bankruptcy clients, it is literally impossible for them to stay productive and to take care of their family without a car. And, for others, it is extremely difficult and time consuming to say the least. Our vehicle repossession and debt relief lawyers understand how important it is to have a reliable vehicle in order to get to and from work, to get the grocery store, to transport the kids, and to otherwise perform life's necessities.
The importance of having a car or vehicle is recognized in bankruptcy. The law offers protection for a car that is paid in full through specific car exemptions, which is around $3450 under both federal and state exemptions. It is possible to stack the wildcard exemption on top of the car exemption. The federal wildcard exemption is $11,975, which can be doubled for married couples who file together. If you have questions about whether or not your vehicle can be exempted in bankruptcy proceedings, we encourage you to call our debt relief offices and speak with one of our Washington State bankruptcy lawyers.Chapter 7 Bankruptcy Can I keep my car if I am current on my payments?
If you are still paying the loan for a car, the balance of the loan is deducted from the value of your car to determine how much you actually own. Only the equity in the car is potentially available to creditors (other than the car finance company) and only that part needs to be covered by an exemption. If you are making payments on a car, you can keep the car in a Chapter 7 as long as you can continue to make the payments. If you want to give the car back, you can do so and discharge any remaining “car deficiency”. If the car was returned or repossessed before filing bankruptcy, the car deficiency is discharged.
Car finance companies ask Chapter 7 debtors to sign a reaffirmation agreement if they want to keep the car. The reaffirmation agreement takes the car loan outside the bankruptcy discharge. You should be careful about signing it. A car finance company can repossess the car without a reaffirmation even if you are current on the payments, though most won’t do so. However, if you default on a reaffirmation agreement, you could find that you have a car deficiency, repossession and bankruptcy on your credit report, no car and a debt remaining for the car. The reaffirmation shifts the risk of you defaulting from the car company to you.
As our vehicle and car repossession attorneys will explain, reaffirmation agreements are not to be treated lightly. Once you reaffirm the underlying debt on the vehicle, you effectively "own" the loan again. This means that if you default on the reaffirmed loan, the lender can simply repossess your vehicle, even though the original underlying car loan debt was technically discharged or wiped out in your bankruptcy proceedings. If the issue of reaffirmation comes up in your case, one of our bankruptcy lawyers will carefully review your legal rights and options so that you can truly make an informed decision about what is best for you given your unique facts and financial circumstances.How does car "redemption" work in bankruptcy proceedings?
Another option in Chapter 7 is a redemption. If you can come up with cash to pay the fair market value of a car to the creditor, they have to give you the title. Of course, this only makes sense if the car is worth less than the loan. There are some companies that can loan you the money to redeem the car.
11 USC 722 of the Bankruptcy Code enables Chapter 7 filers to “redeem” personal property when there is a secured lien holder. Now, the retail value of the subject property must be paid in full in order to take advantage of the redemption laws. But, when done properly, the property is simply paid off at fair market value and the excess or “non-equity” portion of the loan is eliminated.
722 Redemption is most commonly done with vehicles. But, it is not limited to cars. It can also be done with any tangible personal property, such as electronic devices, jewelry, furniture, appliances and other furniture. It cannot, however, be used to wipe out negative equity in your home, however, because it only applies to personal property and not real estate.
A good Washington State vehicle repossession and bankruptcy attorney knows both the redemption and the exemption laws intimately. if you file for Chapter 7 bankruptcy protection, they will be able to help you make the best choice given your unique financial and personal circumstances. As part of our debt relief services, our bankruptcy attorneys advice every client about their car and vehicle options both before and when their petition is filed. We also routinely advise clients with regards to their reaffirmation options after their bankruptcy petition is filed.Chapter 13 Bankruptcy What happens to my car or vehicle if I need to file a Chapter 13 bankruptcy?
Chapter 13 allows you to pay off the car loan in a plan that consolidates it with the rest of your debt. If you purchased your car over 910 days ago (two and a half years), you can “cram down” the car loan in a Chapter 13. A cram down is a plan to pay the value of the car in full, and pennies on the dollar for any portion of the loan over the car’s value. Cram downs are also available for car refinancing and the “roll over” of “negative equity” for trade-ins. Chapter 13 also gives you relief on the interest payment. Chapter 13 can also include back payments and spread out remaining payments in a five year plan.
If you end up needing to file a Chapter 13 bankruptcy, one of our bankruptcy lawyers will thoroughly review your car vehicle options with you based on the specific facts of your case. In many instances, we are able to help our clients keep their vehicle and save money. But, you must have the ability to keep making your payments, even if we are able to do a successful cram down as part of your Chapter 13 plan.Why does the Bankruptcy Code allow me to keep my car when I file?
A car is the most important asset for most people except for their home. Bankruptcy law recognizes how important cars are in a society that requires many people to own one just to survive. Therefore, the law protects cars worth up to approximately $3500 from creditors with the automobile exemption.
You can also stack a wildcard exemption on top of the car exemption – up to $11,975 for federal exemptions and $3,000 for state exemptions. Married couples can stack their exemptions on a car too, as long as it owned together or marital property. In most cases people are allowed to keep their car in a Chapter 7 liquidation bankruptcy or a Chapter 13 repayment plan.
The exemption only needs to apply to the equity in a car. For a paid in full car, the entire value is equity. If you are still making payments, the equity is the car’s value minus the balance of the loan. Many people who file bankruptcy have little or no equity in their car anyway.
If you are in Chapter 7 and making payments on a car, you can keep the car as long as you are able to continue making payments. The creditor will want you to file a reaffirmation agreement which takes the car debt out of the debts discharged at the end of a case.
You may be able to keep the car without a reaffirmation by keeping current on the loan but the law allows a creditor to repossess a car that has not been reaffirmed regardless of whether the loan is current. Your creditor may give you an idea of their policy regarding reaffirmations.
You can also give the car back and walk away from the loan. If you had a car repossessed in the past and still owe money to the finance company, that debt is wiped out in bankruptcy. Our Washington State bankruptcy lawyers will be happy to thoroughly review all of your legal rights and options when it comes to vehicles and filing for bankruptcy here in Washington State. Just give us a call and speak with one of our repossession and debt relief attorneys.Washington State bankruptcy and your vehicle You have important legal rights and options
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As detailed above, another option for keeping your vehicle in Chapter 7 is a redemption. The redemption allows you to pay off a car loan at the value of the car. This is a good option for loans on a car that is worth a lot less than the loan balance. Some finance companies can even loan you money for the redemption while you are in bankruptcy.
As noted above, you can also pay a car loan in a Chapter 13 repayment plan. This plan restructures the car loan with other debt to make it more affordable. For refinanced cars or cars purchased over two and a half years ago, you can “cram down” the loan. The cram down lets you pay the creditor only that portion of the loan that is “secured” by the car’s value. The balance is “unsecured”, meaning it is treated like a credit card debt or medical bill that is not backed up by property. Interest only attaches to the secured portion.
You can also spread payments out over five years and reduce high interest loans no matter when you purchased the car. Another thing Chapter 13 can do is protect an expensive car or multiple cars that may be liquidated in a Chapter 7 by paying unsecured creditors what they would have received had they been liquidated.
Our Washington bankruptcy attorneys firmly believe that knowledge is power. Get the facts about cars and bankruptcy by calling our debt relief offices today. We're here to help!