If you need to file for bankruptcy, one of the things you might worry about is losing your vehicle. The good news is that you won’t necessarily lose your vehicle.
A mode of transportation is essential for most people in the United States. It is reasonable to want to keep your vehicle if you’re going through bankruptcy. However, depending on the value of that vehicle, you may need to sell your vehicle if it is not fully exempted with the possible exemptions on your Schedule C form.
Can you keep your vehicle if you don’t own it yet?
If you are still making payments and would like to keep your vehicle, you’ll want to negotiate and reaffirm the loan during your bankruptcy. If you do this, the loan won’t be subject to discharge at the end of the bankruptcy, so you will be obligated to pay for it.
If you do default on the loan in the future, the lender may be able to repossess your vehicle or sue you for a deficiency judgment. However, if the bankruptcy will make it so that you can more easily afford those payments and you need to keep your vehicle, then you should consider a reaffirmation agreement.
Remember that a reaffirmation agreement does need to be approved by the bankruptcy court. If your lender is not willing to reduce the interest rate or balance of the loan, then the bankruptcy court may not be willing to approve it as a part of your bankruptcy.
What happens if you already own your vehicle outright?
If your vehicle is under the exempted value allowed during bankruptcy, then you will be able to keep it without worrying about having to sell it. You can use a wild card or other exemptions together to keep possession in some cases. However, if your vehicle is highly valuable, such as if it’s worth $40,000 when sold, and you only have $7,000 in exemptions, the court could ask you to sell the vehicle to bring in that additional money to cover the debts you owe.
There is a lot to consider when you go through bankruptcy. These are just a few things to keep in mind.