Darin Swayne, Author at Michael D. O'Brien & Associates, P.C.

Obtain The Legal Guidance You Need To Keep Your Car Using Bankruptcy

Experiencing tough times can make you feel like things are slipping out of your grasp, especially when the thought of losing your car in bankruptcy adds to the stress. But don’t panic—there’s a chance you can keep your wheels.

Your car’s financial status, whether it’s financed or owned, along with Oregon’s laws about car protection, and the type of bankruptcy you opt for, can influence the outcome of your situation.

Short Summary

  • Bankruptcy is a way through the legal system to help when you’re having money problems. It either gets rid of your debts or changes how you pay them back.
  • Whether you can keep your car in bankruptcy depends on stuff like what type of bankruptcy you file, if you own your car outright or still owe money on it, how much your car is worth, and if any special rules let you keep certain things.
  • Chapter 13 bankruptcy gives you a plan to pay back some or all of your debts over time. It lets you keep things like your car by paying off what you owe on it and catching up on any missed payments.
  • Bankruptcy can really hurt your credit. A Chapter 7 bankruptcy stays on your credit report for 10 years, and a Chapter 13 stays for seven years.

Keep in mind that while bankruptcy can help with big debts, it can also really affect your credit for a long time. But by being smart about your choices and working to improve your credit, you can start moving toward a better financial future.

What is Bankruptcy?

Bankruptcy is a legal way for people or businesses who can’t pay their debts to get help. It’s usually a last option, but it can give you a new beginning by getting rid of or changing some or all your debts. But, it’s important to know what bankruptcy means and what it might mean for you before you decide to do it.

What are the Types of Bankruptcy?

Bankruptcy encompasses various chapters under the U.S. Bankruptcy Code. There are two main kinds of bankruptcy for regular folks: Chapter 7 and Chapter 13. They each handle debt problems in different ways.

Chapter 7 Bankruptcy:

  • Often referred to as “liquidation” bankruptcy, Chapter 7 involves the sale of non-exempt assets to repay creditors.
  • Key Features:
    • Liquidation of assets: A court-appointed trustee sells non-exempt property to satisfy creditors’ claims.
    • Discharge of debts: After you finish the bankruptcy process, some of your debts might get wiped out, giving you a chance to start over with a clean slate.

Chapter 13 Bankruptcy:

  • Commonly known as “reorganization” bankruptcy, Chapter 13 enables individuals to develop a court-approved repayment plan to settle debts over a specified period.
  • Key Features:
    • Repayment plan: People come up with a plan to pay back what they owe to their creditors. This plan usually lasts for three to five years, and during this time, they get to keep their stuff.
    • Debt restructuring: Debts can be combined and reorganized in a way that makes it easier for the person who owes money to pay back.

Can I Keep My Car After Filing Bankruptcy?

Many things determine if you can keep your car during bankruptcy. Since your vehicle is considered an asset, creditors might try to take it to get back what you owe them. However, your vehicle might fall within an exemption category safeguarding it from repossession. To figure out if you can keep your car, they usually look at these things:

  • The specific type of bankruptcy being pursued.
  • The ownership status of the vehicle, whether owned, leased, or financed.
  • The assessed value of the vehicle.
  • Applicable exemptions based on your jurisdiction.

Filing Bankruptcy When You Own the Car

When you’re thinking about bankruptcy and what happens to your car, it’s really important to know about your car loan. A car loan is what’s called a “secured debt.” That means if you don’t pay, the lender can take your car back, even if you’ve already filed for bankruptcy.

In Chapter 7 bankruptcy, you have to list all your assets, including your car, on a form called Schedule A/B. Your car is seen as an asset because it has value. You also have to complete a form called the Statement of Intention (Form 108). This form tells the court what you plan to do with your car loan—whether you’ll keep making payments, pay it off early, or return the car. If you don’t fill out this form within 30 days, the car loan might not be part of the bankruptcy anymore.

To ensure you can keep your car during bankruptcy, the initial step is to determine your current car situation—whether you’re paying off a loan, leasing the car, or you own it outright. This helps decide what steps you need to take to protect your vehicle. If you’re making monthly payments, you have a loan or a lease. Leases often have limits on how far you can drive and may charge you if you return the car with damage. With loans, the lender keeps the title as security until you finish paying, but if you don’t, they can take the car back.

Staying up to date on your car payments before filing for bankruptcy greatly improves your chances of keeping the vehicle, whether you’re filing under Chapter 7 or Chapter 13. Even if you fully own the car, you still have to mention it in your bankruptcy paperwork. The value of the car is really important during bankruptcy, as it affects whether you can keep it or if it needs to be sold.

So, knowing where your car stands and how much it’s worth is really important when you’re dealing with bankruptcy and trying to keep your car.

Filing Bankruptcy When You Don’t Own the Car

When you’re going through bankruptcy and you’re still paying for your car, how much your car is worth and how much you still owe on it matters a lot. Equity is determined by subtracting the amount you owe on the car from its current market value. 

For instance, let’s say your car is worth $9,000, and you still owe $4,000 on your loan. That means you have $5,000 in equity, which is like the potential profit if you sold the car. Depending on the rules in your state, if your equity is lower than the exemption amount, usually around $6,000, you can keep your car.

But if your equity is more than this limit, the bankruptcy trustee might sell your car. They’d use the money from the sale to pay off some of your debts. Then you could use whatever’s left to buy another car, as long as it’s under the exemption limit.

The longer you’ve had your car and the more payments you’ve made on it, the more likely it is that its value will go over the exemption limit. But remember, cars lose value pretty quickly as time goes on. 

Unlike fine wine, which can get more valuable over time, cars usually lose value as they get older. This means older cars are more likely to go over the exemption limit because they’re worth less.

What Happens to My Car in Chapter 7 Bankruptcy?

When you file for Chapter 7 bankruptcy, it can help you get rid of certain debts that aren’t tied to any property, like credit card debt. But you might have to sell some of your stuff to pay off your creditors. What stuff you get to keep, and how much of it you can keep, depends on the laws in your state.

If the laws in your area let you keep all the equity in your car under Chapter 7 bankruptcy, and you’re still making payments on the loan, you can hang on to your car. Likewise, if your car’s market value is below the exemption limit and you own it completely, you don’t have to worry about losing it in bankruptcy.

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FACING COMPLEX DEBT PROBLEMS?

Whether you're dealing with overwhelming debt, stopping foreclosure or repossession proceedings, or looking for a way to protect your assets, our Portland bankruptcy attorneys are here to help you overcome your financial hurdles!

Please be aware that submission of this no-obligation form does not establish an attorney-client relationship. By filling out the form, you agree to receiving emails from our firm regarding your case evaluation and other helpful resources. 

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