Can I Keep My Car In Chapter 7?
Your Car in Bankruptcy
Law Office of L. Bruce Swiren, P.A., Orlando, Kissimmee, Central Florida
Chapter 7 clients frequently ask whether they can keep their cars through bankruptcy. There are a few things to keep in mind when thinking about your car in bankruptcy.
Vehicle Exemption In Florida
First, in Florida you are entitled to an exemption of up to $1,000.00 of equity in a vehicle. This means that if your car has value, you can protect up to $1,000.00.
If you own your car free and clear, any value above the exemption will belong to the bankruptcy estate. In order to keep the car, you will have to negotiate with the bankruptcy trustee to buy back the equity.
If you owe on your car, the rules are a little different. If you are behind, the bank will usually repossess the vehicle. Chapter 7 bankruptcy doesn’t provide a way to bring a loan current during bankruptcy.
Auto Loans in Bankruptcy
If you are current on your auto loan, you have a decision: the bank will usually offer you the chance to sign a Reaffirmation Agreement. If approved by the judge, this agreement will take your auto loan out of bankruptcy, so you will not have the benefit of the discharge. The judges will usually only approve a reaffirmation agreement if the value of the car is close to what you owe, and the car has few enough miles that it has a long life ahead of it.
Once a reaffirmation agreement is approved, you have to stay current on your payments. If you fall behind, you will lose the car and the lender can sue you for the deficiency. You will not receive the benefit of the bankruptcy, and the auto lender may be able to collect on a judgment against you by garnishing wages or seizing bank accounts.
If you choose not to sign, or the judge refuses to approve, a reaffirmation agreement, your car may be at risk. Some lenders will repossess the car immediately, and some will allow you to keep it as long as they continue to receive payments each month. It is important to note, however, that you have no protection against the repossession and that the lender can take the car back at any time.