Can I Keep My Vehicle After Chapter 7 Bankruptcy?
Chapter 7 is an erase-your-debts-start-fresh bankruptcy. A debtor in Chapter 7 is unable to pay his creditors over time, so he offers to liquidate his assets. The basic idea is that all of the debtor’s property is taken and sold to pay creditors. Any debt that cannot be paid from the debtor’s property is legally discharged. The debtor has paid all he can.
However, it’s not practical to take everything a person owns. Consequently the federal bankruptcy laws balance the rights of the creditors to receive payment against the need of the debtor to remain able to provide food, clothing, and shelter for his family. The bankruptcy laws allow the debtor to keep reasonable and modest amounts of furniture, clothing, jewelry, and, in most cases, a home and car.
Keeping a vehicle after filing Chapter 7 depends on three questions. First, “Is the vehicle worth more than you owe?” Vehicle equity must be protected with exemptions. The bankruptcy laws allow a Chapter 7 debtor to keep a modest amount of equity in a vehicle, and other exemptions may be available to protect larger amounts of equity. In basic terms, if you have a new Cadillac, and it is paid for (meaning a large amount of equity), the car will be taken and sold to pay creditors.
Second, “Is the vehicle worth less than you owe?” In some cases the debtor’s vehicle loan is a great deal more than the vehicle is worth. In those cases the bankruptcy laws allow the debtor to pay the amount the vehicle is worth and discharge the difference. This process is called “redemption” and the fair market value of the vehicle must be paid to the creditor in one lump sum. Additional financing is often required to obtain the lump sum payment, although the money can come from any source.
Since a loan secured by a vehicle must be paid or the vehicle returned, the final question is, “Are you able to continue making payments?” If you are unable or unwilling to make the monthly payment, the vehicle may be surrendered back to the creditor, and you owe nothing. If you want to continue making payments on the auto loan, you should discuss a reaffirmation agreement with your attorney. Generally, a reaffirmation agreement is filed with the bankruptcy court and continues the loan obligations of the lender and borrower.
If you are interested in keeping your vehicle after a Chapter 7 bankruptcy case, speak to your bankruptcy attorney and discuss your options of surrender, reaffirmation, or redemption. Your attorney can explain the benefits of each process and map out a plan to keep your vehicle before you ever file your case.
Surrendering A Home In Bankruptcy: What Is Your Responsibility Until The House Sells?
Our office often gets questions from clients about what responsibilities they have, if any, when they are surrendering their home in a bankruptcy. The simple answer is this: until the house is sold at a foreclosure sale, you own it and are responsible for the upkeep of the home.
These days, most mortgage companies and banks are in no hurry to have you move out of the home you are surrendering. There are always exceptions. However, the majority of mortgage companies would rather the house be occupied and taken care of than for it to sit empty and deteriorate or be vandalized. Many of our clients opt to stay in the home up until a week or so before the sale date in order to save money on rent. However, whether your intent is to stay until the sale or move out sooner, you need to continue to take care of the home as its owner. That means you continue to cut the grass, pay the utilities, pay your homeowner’s insurance, etc. In other words, you treat the real estate like you did before you filed bankruptcy and decided to give up the property. The difference is that you will no longer make mortgage payments.
There are exceptions where clients make arrangements with a mortgage company to turn over the keys and the mortgage company agrees to take possession of the property before the sale. If you can work out such an agreement, get it in writing!!! You want to make sure that the mortgage company will be paying the insurance and taking care of maintenance before you cancel your insurance policy, turn off utilities or stop cutting the grass.
DO NOT take light fixtures, appliances that came with the home, plumbing fixtures or any other item that is attached to the real estate. Also, avoid causing damage to the house when moving. You want to walk away as cleanly as possible to avoid issues that may be non-dischargable in the bankruptcy. If you have questions, you can always call us for advice!