How To Keep Your Car When Filing For Bankruptcy Relief
Yes, it is possible to keep your car when filing for personal bankruptcy. For years there has been an unproven belief that you will automatically lose your car or truck in exchange for wiping out mounting credit card debts and burdensome medical bills. It’s not a rule and it’s not the norm. Keep reading and see how this works.
About 86% of all personal bankruptcies filed in the metro Toledo, Ohio area are filed under Chapter 7. Chapter 7 bankruptcy is one type of personal bankruptcy and it essentially wipes out one’s unsecured debts such as credit cards, medical bills, vehicle repossessions, home foreclosures, utility shutoffs, cell phone bills, and more. Generally speaking debts such as student loans, taxes, and child support are nondischargeable in Chapter 7 bankruptcy. Most secured debts such as mortgages and car loans can continue so long as the debtor keeps current on such bills. Since Chapter 7 bankruptcy liquidation does involve the possibility of liquidation, it is important that you speak with your France Law Group attorney to determine whether any of your assets are at risk. Under Ohio law, there are many generous exemptions to help protect your assets, including the protection of $4,000.00 of equity in your primary vehicle.
Not everyone qualifies for Chapter 7 bankruptcy relief. While it is estimated that over 80% of prospective clients qualify for Chapter 7 bankruptcy relief, everyone must first pass two prerequisite tests relating to household income and family size. For example, one such test sets the median income for a family size of three in Ohio at $78,484.00. Falling below the Median Family Income guideline favors Chapter 7 bankruptcy eligibility.
For those who don’t qualify for Chapter 7 bankruptcy relief, there is an alternative that allows you to repay debts over a period up to sixty months. This type of personal bankruptcy is called Chapter 13 bankruptcy. Some clients are able to pay as little as pennies on the dollar towards their debts, while others are encouraged to repay their debts in full. Your France Law Group bankruptcy attorney will carefully examine your financials and advise you right the first time. Some key advantages to Chapter 13 bankruptcy are stopping most creditor lawsuits, ending collection calls, no assets are at risk of being taken away, and the repayment is often times less than a debt consolidation payment. Additionally, a Chapter 13 repayment plan can include student loans, tax debts, and child support arrears.
Now that we know some ground rules, it is obvious that one’s car is not at risk in a Chapter 13 bankruptcy and is typically not at risk in a Chapter 7 bankruptcy. The key in a Chapter 7 bankruptcy is that one’s car is exempt (protected) so long as there is no more than $4,000.00 of equity in the vehicle. Here is an example of a car that is protected in a Chapter 7 bankruptcy: Jimmy owns a 2015 Chevy and drives it daily to and from work. According to the NADA Guides (“blue book”), Jimmy’s car is worth $12,000.00 in its current condition. Jimmy still owes $10,000.00 on his car loan. The remaining $2,000.00 is equity, however we have an exemption which can protect up to $4,000.00 equity. Thus Jimmy’s car is safe so long as he continues to make his monthly car payments to the lender.
Here’s an example of a car that would be at risk in a Chapter 7 bankruptcy: Brittany drives a 2010 Volvo, which is paid off. She loves her car and learned that it’s current value is $9,000.00. Since there is no loan on the car, it simply has $9,000.00 of equity and is at risk of liquidation in Chapter 7 bankruptcy. Brittany’s attorney advises that the first $4,000.00 of equity is protected by the motor vehicle exemption. Also, Brittany has a $1,325.00 wildcard exemption available that she can place on the car to reduce the amount of exposed equity. The bottom line is $3,675.00 of unprotected equity in the Volvo. The Trustee doesn’t necessarily want the car, she is seeking to recover the $3,675.00 and then use these funds to pay creditors of the bankruptcy estate. Brittany would likely have the option to buy back her Volvo for this amount and keep her car.