One of the common questions we get is whether or not someone filing bankruptcy can keep their car. The answer is Yes, but you do have to pay to keep it. How you do that depends upon how much equity is in the car, whether you own or lease, whether it is jointly owned, and whether you are current on the payments. The information below applies to Florida exemptions, the laws may be different in other states and you may still be governed by another state’s exemptions if you’ve recently moved to Florida.
Chapter 13: A Chapter 13 can be used to catch up on missed payments. It also can be used to value an underwater vehicle that you have owned for more then 910 days to what it is worth now. I’m sure you know this, but just in case, the phrase “underwater” means you owe more than it is worth. If you are current on payments, and the vehicle is worth more or equal to what you owe you would just “pay direct” and simply inform the court that you are continuing to make monthly payments. There is no need to reaffirm the vehicle, as the original credit agreement continues to exist throughout the bankruptcy.
Chapter 7: You can also keep a vehicle in a Chapter 7. In Florida, you are able to keep certain exempt property which includes $1,000 personal property, $1,000 vehicle equity, and a special exemption of $4,000 if you rent, or you do not own a home that you are keeping or otherwise receiving the benefit of a homestead. So if you are able to claim all three exemptions, for a single debtor, that would mean you can keep $6,000 worth of vehicle or belongings. Anything more than $6,000 you can make arrangements with the bankruptcy trustee to pay to keep. So for example, if your vehicle is worth $10,000, but you still owe $8,000, that means you have $2,000 in equity. If you also had $1,500 in personal belongings and $1,000 in the bank, you would have a total of $4,500 which would fall with the allotted $6,000 exemption. You could keep the vehicle and just continue to make the payments. In order to do so, the creditor will require you to sign a reaffirmation agreement which is essentially a new agreement to pay for the vehicle. The terms are generally the same although in some cases the amount owed or interest rate can be negotiated down.
Legal Issues: There can be legal issues regarding ownership if the vehicle is owned by a husband and wife and only one spouse files. An asset protection mechanism called Tenancy By the Entirety kicks in then to protect the vehicle’s full value if the vehicle is acquired and titled in a particular way. Likewise, if a family member or friend claims a lien on vehicle this has to be done timely and legally with a valid security agreement and registration of the lien with the DMV. It is best to have proof of the money being paid that resulted in the lien. There can be an issue called cross-collateralization. This is where a creditor, often one of those family friendly credit unions where all their advertising has a family and their dog in it, has had you sign a credit agreement whereby you cannot keep your vehicle if you do not also pay off any unsecured credit cards with the same credit union. So your $10,000 vehicle that you owe less than $8,000 for, all of a sudden will cost $20,000 if you have a $10,000 credit card bill outstanding.
For additional information about filing bankruptcy, please see our website at Christie D. Arkovich, P.A. As you can see here, there are a lot of variables when filing bankruptcy. We help determine if it is the best choice for you and your family. We are a small enough firm to help our clients strategically file in order to obtain the best possible outcome. If you’d like to know if we’d be a good fit for you, please check out our Avvo reviews.