When deciding whether to file for bankruptcy, you may have questions regarding certain assets, particularly your vehicles. Often, the loss of a car will impact your job and transportation needs. Fortunately, filing for bankruptcy doesn’t automatically mean losing your vehicle. You need a bankruptcy lawyer to help you determine what to expect if you plan to keep your car.
At Luftman, Heck & Associates, we understand your concerns about transportation issues and can help guide your decision-making about your vehicle in a bankruptcy. Dealing with debt and financial issues is stressful, but our experienced team has helped hundreds of clients reclaim their financial footing through bankruptcy.
Will a Chapter 7 Trustee Sell My Car?
If you file for chapter 7 bankruptcy, there are many possible scenarios you face when it comes to your car(s):
If you file chapter 7 bankruptcy, Ohio law provides for certain exemptions for some assets. Your car is one of them. Exempt from the reach of the trustee is up to $3,775 of equity in a vehicle. To illustrate, if you own a car valued at $10,000 with an $8,000 loan, your car would be exempt under state law, as there is only $2,000 in equity. But if you owned a car worth $10,000 with no loan, the trustee could pursue the non-exempt equity of $6,225, and use that to help pay your other unsecured creditors.
But if you are behind in your car payments in a chapter 7 bankruptcy, you likely will lose your car unless you bring your loan current, or your lender agrees to a new payment plan. Another option is to “redeem” a car by paying the lender the replacement value of the vehicle. This option is only available if the equity is exempt, or the trustee has abandoned the property by deciding not to sell it.
The rules differ for car leases. After your bankruptcy lawyer files your bankruptcy petition on your behalf, they will work with you to fill out a “Statement of Intention for Individuals Filing Under Chapter 7” within 30 days. This statement lets creditors know what you plan to do with an unexpired vehicle lease. Failure to file the statement can result in the lifting of the automatic stay, which is what protects your car from being repossessed while you are in bankruptcy.
If you assume the lease, you will continue to make payments just as you did prior to bankruptcy. The debt, including any extra charges for damages or high mileage, will not be discharged. If you fail to make payments, the car can be repossessed just like before the bankruptcy.
You also have the option of ending the car lease. Doing so lets your creditors know you don’t intend to keep paying it. Once you make that election, the creditor may file a motion to lift the stay so it can repossess the car. Rejecting the lease frees you from further payments and liability for excess mileage fees and damages.
Keeping Your Car in Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy – where you have a three to five-year plan to pay back your debts in part or full – it is typically easier to keep your car. You must stay current on your payments and arrange for any arrearages to be paid through the plan.
Chapter 13 bankruptcy also allows you to reduce your car loan, if your car is worth less than the amount owed. In other words, if there is no equity in the vehicle. Basically, you can reduce your debt to the value of the property. For example, your vehicle is worth $3,000, but you owe $8,000 on the loan. The secured loan is “crammed down” to $3,000 (the value of the car), and the remaining $5,000 of the loan is now unsecured debt in your Chapter 13 plan, which will only be paid a small percentage. At the end of your plan, you will own the vehicle and owe nothing more. This option is only allowed on vehicles purchased more than 910 days prior to filing for bankruptcy.
Car Leases in Chapter 13
Under the law, your Chapter 13 trustee has until your plan is confirmed to accept or reject a car lease. If assumed, the trustee “steps into your shoes” as leasee. Typically, trustees will not assume a car lease, and then you will decide what to do with the car. Your decision regarding your car lease can have various consequences and that is why consulting our bankruptcy attorneys is so important.
Contact a Cleveland Bankruptcy Lawyer for Help Today
At Luftman, Heck & Associates, our Cleveland bankruptcy lawyers will work with you to determine whether you should reaffirm or reject your current car loan or lease. There may be factors that weigh in favor of one way or the other, and our experience in counseling debtors can help you decide what is best for your situation. To schedule a free, initial evaluation of your case, contact us today at (216) 586-6600.