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Can I keep my car in an Everett bankruptcy?
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What happens to my car when I file an Everett bankruptcy?
Bankruptcy and your cars and vehicles.
Most people who are considering a Chapter 7 bankruptcy are worried about what will happen to their cars. If you are still making payments on the car, you probably just have to keep making the payments to keep the car. If the car is paid in full, most likely it is not worth enough to be at risk of being taken to pay some of your debts.
The laws that protect certain property from being taken to pay your creditors are called “exemptions”. You can protect from $2,500.00 to $14,425.00 of a car’s value. How much of your car you can protect depends on how you use your exemptions. If you have no equity in your house, you can protect more of your other property by using federal, instead of Washington state exemptions. Our Everett bankruptcy attorneys have years of experienced maximizing the amount of exemptions our clients are entitled to by law.
You can also pay for a car through a Chapter 13 bankruptcy consolidation plan. This may be a good idea if you have other reasons to file a Chapter 13 or if you are behind on car payments and you need to stop a repossession.
In a Chapter 7, you just have to keep making the payments. Your lender will probably want you to sign a “reaffirmation agreement.” This agreement takes the car debt outside of the bankruptcy discharge, so it remains a debt you have to pay. If you don’t sign this agreement, the lender can repossess your car even if you are current with your payments.
It is not always clear whether a creditor would actually do this. In any case, you must be very careful about this decision because if you end up not being able to pay the debt, your car could be repossessed and you could still owe part of the loan after it is sold at auction. If you do not sign the reaffirmation agreement but end up not paying the debt off, the debt is canceled.
Chapter 7 does offer an alternative to making the regular payments. You can pay the loan off with a lump sum based on the car’s value. This is called a “redemption”. There are some lenders willing to lend to people in a Chapter 7 bankruptcy to pay off their car loans at the sometimes drastically lower amount of the car’s value. Sometimes someone in bankruptcy has the cash to redeem the car, especially if it’s an older car financed through a used car lot.
If you still owe for an old repossession, that debt is discharged in a bankruptcy. Both Chapter 7 and Chapter 13 bankruptcies stop repo men dead in their tracks the second you file your case, but in a Chapter 7 you can’t fall behind on your payments and stay safe, though it can giving you some breathing room. Overall, we are your best choice to go over the options with you so can get a meaningful fresh start in bankruptcy – which means keeping your car so you can get back on track!