HOW TO KEEP YOUR CAR AND TRUCK IN BANKRUPTCY
The ability to keep your car or truck in bankruptcy is often a major consideration when filing a Chapter 7 or Chapter 13 bankruptcy. A dependable vehicle is often essential to keeping a job or getting the kids to school.
Fortunately, in a Chapter 7 bankruptcy, you can almost always keep your car or truck if you are up to date on monthly car payments and the value of the vehicle is within the exemption amount. By contrast, in a Chapter 13 bankruptcy, you can also keep your vehicle even if you are behind in payments. Also, you may be able to get the bankruptcy court to order a reduction in the amount owed.
KEEPING YOUR CAR IN A CHAPTER 7 BANKRUPTCY
The first item to consider is how many vehicles you own that you wish to keep. In Colorado, you can exempt up to two vehicles with a $7,500 total exemption. However, if the person or person’s spouse is 60 years of age or older, disabled, or the person’s dependent is disabled, the exemption is increased to a $12,500 total exemption. If filing jointly, the exemptions are doubled. So, if one person is filing bankruptcy and that person has two vehicles, one worth $5,000, and one worth $2,500, then you divide the exemption between the vehicles based on their values and keep them both. Similarly, if you own one vehicle worth $20,000 and owe $12,500 on it, you apply the $7,500 exemption and may keep the vehicle so long as you are current on payments and continue to be so. In many cases, there is no equity in the vehicle. In that case, you merely keep making the payments on the car or truck.
If there is significant equity beyond the vehicle exemption amount, I direct clients to obtain an estimated auction value from a local auctioneer. I then review it before filing for bankruptcy. The auctioneer usually charges 15% of the auction price. I may offer to pay the bankruptcy trustee the amount that may be realized in an auction, less auction costs and loan payoff. Most trustees will accept a reasonable payment plan.
What if you are upside down on a car? In many cases, a debtor can pay the lender the value of the vehicle, and nothing beyond. This is known as redeeming, or redemption of, the vehicle.
KEEPING YOUR CAR IN A CHAPTER 13 BANKRUPTCY
In a Chapter 13 bankruptcy, there are even more options available to keep your vehicle. In Chapter 13 you do not have to be current on your car payments at the time you file. So long as the vehicle has not been repossessed, you can take the past due payments, the arrearage, and pay it over time through the Chapter 13 Plan. However, you must also timely pay future monthly payments during the Chapter 13 Plan.
In addition, in Chapter 13 you may be able to reduce the amount owed on a vehicle to its market value and use the Chapter 13 Plan to pay off the vehicle at the reduced amount. This is known as a cramdown. One of the cramdown requirements is the security interest on the vehicle was not incurred within 910 days (about two and a half years) prior to the bankruptcy filing.
Have your financial situation and the myriad ways to keep your car considered by an experienced bankruptcy attorney and former Trustee for the U.S. Bankruptcy Court. Call or contact Martin Long of LONG & LONG P.C.now at 303-832-2655, or www.denverbankruptcylawyer.net.