Can Bankruptcy Protect My Vehicles from Repossession?


Can Bankruptcy Protect My Vehicles from Repossession?

A car is an essential item for the majority of people in Georgia. Those who live in rural areas, have a long commute to work, or are parents to young kids are especially lost without the use of a reliable vehicle. That is why the prospect of filing for bankruptcy is almost always accompanied by the fear of car repossession as a consequence.

However, you will not necessarily lose your car simply because you have been forced to file for bankruptcy. The Chapter under which you file for bankruptcy and your specific circumstances will dictate the outcome of your case.

Chapter 13 Bankruptcy

The balanced owed on your car comes under the Chapter 13 plan, which means in the majority of cases you will retain ownership of the vehicle. If the balance on the car is higher than what you deem reasonable to pay through a Chapter 13 plan, it may not make sense to take that route. An alternative, and often more appropriate measure, is to allow the creditor to take repossession of the car, leaving you with a clean slate. However, depending on when you purchased your vehicle you may be able to propose a plan allowing you to pay less than you owe on the car and still keep it. Even if you are required to pay the full amount owed on a car, as long as you can afford the payments you may be able to keep the car and pay for it through your Chapter 13 plan.

If you have allowed your insurance to lapse due to financial hardship, the creditor will seek repossession as a safeguard against the risk of an uninsured vehicle incurring damage. Lastly, if you fail to make payments in accordance with your Chapter 13 plan, the creditor may request court permission to repossess your car. These scenarios are avoidable as long as you have a financial reorganization plan that takes the costs of insuring and continuing payments on the vehicle.

Is the car fully paid for or does it have a lot of equity beyond the debt? The question then becomes: How much it worth? Knowing how much your car is worth is important as it is factored into your exemption. In Georgia, the exemption for a car is up to $5,000, with the additional potential of $11,200using the wildcard exemption. Therefore, if the car is worth more than $16,200it is worth considering Chapter 13 bankruptcy to avoid liquidation of the vehicle.

Chapter 7

Reaffirming debt is an important aspect of avoiding vehicle repossession under Chapter 7 bankruptcy. This scenario applies when you still owe money on the car and are able to maintain your regular payments. You must enter into a contractual agreement with the creditor to continue paying off the car, despite having filed for a Chapter 7. It is important to note that the creditor is not obligated to enter into such an agreement.

The potentially good news is, accepting to enter into a reaffirming agreement is the preferable option for creditors in most scenarios. However, you cannot file against the same debt under a Chapter 7 bankruptcy for 8 years after the filing date of the previous Chapter 7, so it is wise to ensure that taking this course of action is really what’s best for your financial stability and needs.

At H. Lehman Franklin we have helped countless clients to navigate through the complexities of filing for bankruptcy. If you want to gain financial stability and still keep your car, call our offices today to explore all your bankruptcy options.