Can I keep my car when I file bankruptcy?

13 Feb Can I keep my car when I file bankruptcy?

People think that when they file bankruptcy they will lose everything. That’s hardly the case.

People always ask if they can keep their car. In most cases, they can.

I always ask my clients if they own or lease their car?

Leased cars

You can continue to lease the car after bankruptcy if you continue the payments on the lease just as you did before the bankruptcy case.

Cars subject to loans

If you purchased your car under a Retail Installment Sale Contract, it is very likely that you owe more on the car loan than the car is worth. You have the choice of giving up the car – surrendering it to the lender. If you do that, you won’t have the car but you won’t have the loan either. If you decide to keep the car, you’ll have to reaffirm the debt. You’ll have to sign a reaffirmation agreement. You’ll have to get your lawyer to vouch for your ability to keep up the payments after the bankruptcy. Otherwise, you’ll have to convince a judge that you can keep up the payments after bankruptcy. Your last option is redemption.

Redemption

If you have access to enough money to pay the car finance company the present value of the car, then you have the right to redeem the car. This can be an excellent option to avoid high priced car finance contracts. There are companies who will make redemption loans on late model cars. You can also get money to redeem from friend, family or relatives. Or you can use otherwise exempt assets. We’ll be writing more about redemption in future posts.

Cars you own free and clear

Trustees like it when you own a car free and clear. They can sell it and make money for the estate to pay creditors. You can claim exemptions on cars. Illinois allows you to protect $2400 on one car plus an additional $4000 on the so-called “wild-card” exemption. Wisconsin allows $1200 on one car plus an additional $5000 under the “wild-card” exemption. Federal exemptions allow $2400 on one car plus an additional amounts if he doesn’t use the homestead exemption to protect a residence. So in many cases, you’ll be able to keep a car even if you own it free and clear.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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