“I don’t want to file bankruptcy on my house!” “I don’t want to file bankruptcy on my car!” “I owe my mom some money but I don’t want to file bankruptcy on her!”
Every bankruptcy attorney practicing in this country has heard these phrases or variations of them. The client wants to keep his home so he thinks that if it is not listed in his bankruptcy documentation, he is not “filing bankruptcy” on it and can keep it.
So, do you have to “file bankruptcy” on your house or car if you want to keep it? In a word, yes!
When you sign your bankruptcy petition, you are certifying to the United States Bankruptcy Court, under penalty of perjury, that the petition and schedules attached to it lists all of your assets and all of your debts. All means all! You do not get to pick and choose which debts you list in your bankruptcy case. You list all.
But, just because a debt is listed, particularly a secured debt, that does not mean that you automatically lose your property securing that debt or your mom is forever mad at you because you discharged the debt that you owe her. With regards to secured debts, there are several things that must be looked at in order to determine whether you will be able to keep the property or not.
First, how much equity do you have in the property. Just to recap, equity equals the value of the collateral, let’s say an automobile, less any liens securing debts. For example, if the car is worth $10,000.00 and you owe $6,000.00 on it, you have $4,000.00 in equity in your vehicle.
You are allowed to exempt a certain amount of equity in various types of property. In North Carolina, you can exempt up to $3,500.00 in equity in one motor vehicle. So, if your car is worth less than what you owe on it or the value does not exceed the allowed exemption, the trustee is not going to be interested in selling your car.
Second, can you continue to afford the payments? This is not a bankruptcy issue per se but a practical, everyday, real world issue. After your unsecured debts are discharged, are you still going to be able to make your car payments? If yes, then as long as you keep making the payments, keep the car insured, etc., you can keep your car.
However, if you do not keep making the payments, if your bankruptcy case is still active, the creditor may file a motion (Motion for Relief from the Automatic Stay) asking the court to allow the creditor to repossess the vehicle. If your case is over and you have been discharged, the creditor may just come take it. You should not overlook realistically being able to afford the payments.
Are you behind on your payments? Assuming that you file a chapter 7 bankruptcy case, if you are behind on the payments and you want to keep the property, you may need a plan to catch up the amount that you are behind and pretty fast. Most creditors will not tolerate you being behind for very long in a chapter 7 filing before they start asking the court for the right to repossess the collateral. If you cannot catch up the amount that you are behind, you may have a problem.
How much is the collateral really worth? An overlooked option in chapter 7 bankruptcy cases is “redemption.” Under Section 722 of the Bankruptcy Code, you can redeem collateral by paying the value of the collateral as opposed to what you owe on it. For example, if your car is worth $7,000.00 and you owe $14,000.00, you can get the car title by paying the $7,000.00–approximately what the creditor would have gotten by selling the vehicle at auction.
There are companies that will assist in financing redemption purchases. The interest rates can be high but what you are saving on “principal” can more than make up for the higher interest charges.
Finally, on family loans to mom or other creditors that you with whom you really wish to maintain a relationship, nothing prohibits you from voluntarily repaying a debt after bankruptcy. You should be careful with this though because you do not want to get yourself back in a debt cycle. Perhaps pay mom back after your bankruptcy discharge. For more on this, click here.
In summary, when you file bankruptcy, you must list all debts. All means all. There are no exceptions.
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