It has been my experience, that when I consult with individuals who are considering filing for bankruptcy, the most common question I get is “what about my car, can I keep my car if I file bankruptcy?” My answer, of course, depends on the circumstances of the individual debtor involved, but most of the time the answer is yes. There are some instances when a Trustee assigned to your case will not let you keep your car. If your vehicle is of substantial value and cannot be exempted in your schedules, the Trustee will likely pursue a sale of the property to satisfy some of your debts. For example: you came into a whirlwind of money a few years ago, and decided to purchase an antique Ferrari. Your finances have currently taken a turn for the worst, and you are filing for Chapter 7 bankruptcy. Typically, the Trustee will auction the Ferrari to the highest bidder and satisfy some, if not all of your debts. In this type of situation, my answer would be no, you cannot keep your car. However, if you are like most debtors, you either fully own your car outright, with no loans or liens, and the property has a fair market value of less than $15,000, or you have financed a vehicle that has decreased in value significantly over the years. If you currently lease or have financed your vehicle, the following are options available to you in a Chapter 7 bankruptcy:
Surrender The Property:
Surrendering your vehicle to the bank or credit union is the easiest way of getting rid of the headaches the come with owning a car: monthly payments, insurance, gas, and parking. The major difference between surrendering a vehicle in a Chapter 7 bankruptcy, and having the property repossessed outside of bankruptcy, is something called a “deficiency balance.” Whenever property is repossessed, these normal course of events take place: the bank sells the car at an auction to recoup their losses, which is typically thousands, if not tens of thousands of dollars less than what you originally purchased it for. The bank then sends you a bill for the difference, which is your contract price minus the amount the property sold for at the auction. The bank has all the right to collect this amount by reporting to the credit bureaus, garnishing your wages and filing a lawsuit against your for the balance. The deficiency balance will remain on your credit report, and will continue to drag down your credit rating no matter how current you are on your other bills. On the other hand, in bankruptcy, the deficiency balance is discharged, and
you can move on with your life free and clear. Most people need their car to get around life, so surrendering is not an option for them.
Keep Making Payments:
If you have been current with your payments, then the lien holder has no reason to worry that you will default. A happy creditor is a paid creditor. In bankruptcy, you have the option of keeping your car by continuing to make monthly payments during the pendency of your bankruptcy and after your bankruptcy is finalized. Keep in mind that, if you cannot make payments or no longer want the property down the road, your previous bankruptcy filing will not come in and save the day. Your obligation to the lien holder will not be discharged, and you must wait approximately eight years before you can file another Chapter 7 bankruptcy.
Reaffirm The Debt:
If you have not been current on your monthly payments and file for bankruptcy, the creditor will request that you reaffirm the debt. A reaffirmation agreement is a new contract between you and the lien holder, which triumphs the former contract, and sets out new terms. This is your time to negotiate! Most of the time, the ball is in your court when negotiating a reaffirmation agreement. It is not uncommon for the creditor to agree to terms that will save you thousands of dollars. Banks understand that if you return the property that they are bound to lose thousands of dollars at the auction, without being able to charge you for the deficiency balance. By entering a reaffirmation agreement with less stringent terms, they are not losing out on much. If you default after signing a new contract, they can still repossess the car, sell it at an auction and charge for you for the deficiency balance, to which bankruptcy protections would not apply. For the most part, they are guaranteed to get some monthly payments from you before you decide to default.
Redeem The Vehicle:
Redemption is the best option for a debtor who can afford to make one lump sump. For example, redemption operates in the following way: if you financed or leased a vehicle from the bank a few years ago for $8,000, and now the car is worth $3,000, you can purchase the property from the bank outright for one lump sum and have the difference discharged. If this seems like something that may apply in your situation, you can start by running a preliminary search on Kelly Blue Book to get an approximate fair market value of your car. See if KBB yields a search result for an amount that you can possibly afford to make in one lump sum to the bank. If yes, your next step should be to visit a property appraiser in New York State to receive an official fair market value estimate.
Upon receiving the official appraisal, you can contact the creditor directly and let them know that you want to redeem the car and the amount stated on the appraisal. Most creditors understand that they have no chance disputing an official appraisal, and agree to the stated amount with no difficulty. If you cannot come to an agreement with the creditor, a motion to redeem the vehicle must be filed with the Bankruptcy Court. The creditor will be given a specific time frame, typically 21 days, to voice their objections. If the creditor fails to do so, the court will enter an order directing you to pay the sum stated in the appraisal to the creditor within 30 days from the date the order is entered. If the creditor does object to the amount stated in the appraisal, the court determines the fair market value of the property at a valuation hearing.
Contact An Experienced Bankruptcy Lawyer
Take note that the preceding options do not apply only to vehicles, but apply to any property that is secured by a lien: boats, motor-homes, electronics, furniture, and so forth. The above-prescribed acts are not recommended to be undertaken by a pro-se debtor.
Contact a legal professional now and begin the road to recovery:
Mishiyeva Law- Bankruptcy Lawyer NYC 80 Wall Street New York, NY 10005 (646) 736-6328 kmbankruptcylawyerny.com