Can I Keep My Vehicle?
When people consider bankruptcy, one of the first questions they ask us at Equal Justice Law Group is: Can I keep my vehicle in bankruptcy?
It's understandable; without a dependable source of transportation, the responsibility of discharging debts through employment becomes that much more difficult.
It all comes down to the exemption amount.
If the equity in your vehicle (fair-market value minus the loan balance) is under the exemption amount, no problem. You will be able to keep your vehicle so long as you are current with all the loan payments and other loan obligations as of the date of the bankruptcy filing.
If you have a car loan, you may be required to perform either a reaffirmation or a redemption. To learn more about these, please continue reading.
For more information on retaining vehicles during bankruptcy, we invite you to contact us at Equal Justice Law Group. With offices in Jackson, Placerville and Sacramento, we're nearby and ready to serve you.
And as always, your case evaluation and initial consultation are both confidential and absolutely free.
When you reaffirm a debt during bankruptcy proceedings, you essentially retain the debt. In addition, your lender's security interest in the vehicle stays in place. It's as if the bankruptcy was never filed.
Three parties must agree to the reaffirmation: the creditor, you, and either the judge or your attorney. The attorney must certify that the reaffirmation is not an undue burden on you or your dependents. Judges and attorneys generally will not approve the reaffirmation if your post-bankruptcy finances do not support it, or if the debt being reaffirmed is more than the replacement cost of the vehicle.
If you default on reaffirmed debts after the bankruptcy, the creditor can pursue all remedies and you can't file another bankruptcy. This means the creditor can use the security interest to take the car from you and use the promissory note to seek a deficiency judgment if the value of the car is less than the debt. Reaffirmations should be carefully considered and used only if you will not be able to obtain another vehicle after the bankruptcy.
Redemptions are rare. Redemption involves buying the vehicle back from the lender. You must pay the lender the replacement cost, factoring the age and condition of the vehicle, not the amount of the debt still owed.
The advantage of redemption is that you own the vehicle free of any debt. The disadvantage is that you must have the means of paying a lump sum of cash to the creditor.
Redemption is not available for business debts. If your vehicle is used in a business, you cannot redeem it.
Obviously redemption makes sense only if you have the cash to swing it, or can refinance the redemption value with a new loan, and if the debt exceeds the value of the vehicle. It also requires you and the creditor to agree to the current value of the vehicle, which can be problematic. It may result in additional attorney fees for motions and hearings to resolve the valuation issue.
Note that there are specialized lenders who can providing financing for a redemption.