If you are exploring how bankruptcy can help you get out of debt, you may also be worried about what happens to your car in bankruptcy. For most of us our vehicles are critical to the way we live our lives. Before filing, it’s important that you understand how your car and your car loan will be treated through the bankruptcy process.
First, rest assured that most people who file for bankruptcy can protect their car through the bankruptcy process, and choose to keep their car. However, you also have the option of surrendering your car and erasing the debt.
Second, the options that are available to you depend on the specifics of your case. Together we’ll explore your options regarding your car during your free consultation.
Missed Car Payments & Bankruptcy
If you have missed one or more monthly car payments, read our articles:
- Is Your Car About To Be Repossessed Because You Missed Your Car Payment?
- Getting Caught Up On Late Mortgage or Car Payments
Car Loans & Bankruptcy
In general, if you can afford to make your monthly car loan payment and you do not have more equity than can be protected, then you can keep your car.
Motor Vehicle Exemption in Georgia
In Georgia you can exempt up to $5,000 in one or more motor vehicles. Property that is “exempt” means it is protected through bankruptcy and you get to keep it, as long as the item’s fair market value does not exceed a certain dollar amount.
If your motor vehicle is valued at more than $5,000, you may still be able to protect it under Georgia’s “wildcard” exemption that allows an additional exemption of $1,200 in value plus any unused amount of the exemption not to exceed $10,000 in real or personal property that you or your dependents use as a residence on any belonging. Also, if you are married and filing jointly with your spouse in Georgia, you may double these exemptions.
You can calculate the equity you have in your car by subtracting the amount you owe on the loan from the current fair market value of the vehicle.
Keep Your Car & Continuing to Make Payments on the Loan
If you file a Chapter 7 and plan to keep your car that has a loan, unless otherwise ordered by the court, you must continue to make your monthly car payments during and after bankruptcy. If you file a Chapter 13 you may be ordered to pay the loan directly to the lender and you will need to do so every month or through your Chapter 13 trustee. Car loans are secured debt, meaning the loan is attached to the car as collateral. If you do not make your payments, the lender will have the right to repossess the car.
Reaffirming Your Car Loan
A caveat to this option is that if you file a Chapter 7 bankruptcy and want to ensure your vehicle will not be repossessed, the U.S. Bankruptcy Code requires you to “reaffirm” your loan during bankruptcy (before discharge). This means that you sign paperwork that reaffirms the terms of the loan. There are other implications of reaffirmation agreements as well, which we will go over during our free consultation.
When you work with us, we will make sure that you understand what your options are in regard to your vehicle, and if you will be able to keep it through the bankruptcy process.
Erasing Your Car Loan & Surrendering Your Vehicle
If you do not want to or cannot keep your car, you have the option of surrendering the vehicle and erasing the debt.
There are times when surrendering a vehicle is the wise financial decision. For example, if your car is underwater (your owe more than it is worth), or if it has a high monthly payment you simply cannot afford, then surrendering the car may be the best choice. This option allows you to erase the debt, and the lender will not be able to come after you for a deficiency between the amount the car sells for and the amount you owe.
Contact us to discuss what will happen to your car or other motor vehicles if you file for bankruptcy. The Law Office of Barbara B. Braziel offers free consultations to people in the Savannah, GA area and the surrounding counties including Chatham County, Effingham County, Bulloch County, Bryan County, Liberty County, Long County.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.