Keep Your Car and Other Assets After Filing a Bankruptcy Case
“In most cases, debtors with experienced bankruptcy counsel find that they are able to keep all of the assets that they want to retain.”
Lien Rights of Creditors Bankruptcy Cases
Many of the consumer debtors that we have represented have owned assets subject to a loan. Most of our clients have purchased their vehicles under a vehicle retail installment contract (in plain terms, a car loan). If your car loan is current when you file your bankruptcy case, you can continue to make your car payment and keep your car.
If you are behind on your car payments, you may still be able to keep your car by catching up on your missed payments over time in a case under chapter 13. In fact, some borrowers who are behind on their car payments when their cases are filed, keep their cars by catching up on the payments directly after their cases are filed, without chapter 13 repayment plans. Every case is different, and clients should discuss the most prudent course of action in their particular cases with a highly experienced and knowledgeable bankruptcy attorney.
Other secured loans (that is, loans used to purchase assets where the lender retains the right of repossession) are treated similarly to automobile loans. For many reasons, loans secured by mortgages are governed by other rules. However, the basic framework remains the same and, if you continue to pay for your mortgage on time, your lender usually cannot foreclose upon your mortgage.
Reaffirmation of Debts
Your vehicle lender or other secured creditor may request that you sign a reaffirmation agreement. A reaffirmation agreement is an agreement between a lender and its borrower that the pre-bankruptcy rights of both parties will continue in force even after the borrower’s debts are discharged. You may be able to keep your car without reaffirming the loan. Reaffirming a debt may have serious consequences, and debtors should discuss their particular situations with their bankruptcy attorneys before deciding whether a reaffirmation agreement is in their best interests.
The Interplay Between Equity and Exemptions
Debtors who owe much less on their vehicles than they are worth may face another challenge. An unencumbered asset (that is, one that isn’t subject to a lender’s lien) in a case under chapter 7 of the Bankruptcy Code, may attract the attention of a chapter 7 trustee who may wish to sell the asset and distribute the proceeds to unsecured creditors. Similarly, in a chapter 13 case, parties in interest may object to the confirmation of a chapter 13 plan if the “liquidation alternative test” is not met. The liquidation alternative test requires debtors to pay their unsecured creditors at least as much as they would receive in a hypothetical case under chapter 7. In some chapter 13 cases, unencumbered assets may require debtors to increase their chapter 13 plan payments to provide a greater distribution to the holders of unsecured claims.
Exemptions are the first line of defense that debtors have against losing their unencumbered assets. The Bankruptcy Code enumerates certain exemptions that allow some debtors to retain their vehicles and homes. However, state law determines whether debtors residing in that state may use the federal exemptions contained within the Bankruptcy Code, or another exemption scheme provided under that state’s law. Pennsylvania residents are fortunate in that they may choose between the federal and Pennsylvania state exemption schemes. Selecting the most advantageous set of exemptions and wisely applying available exemptions should be something that you discuss with your bankruptcy attorney before your case is filed. In most cases, debtors with experienced bankruptcy counsel find that they are able to keep all of the assets that they want to retain.
You may be able to continue to make your car payment and retain your vehicle after bankruptcy
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If you have bankruptcy related questions, you may wish to discuss them with an experienced bankruptcy attorney. Our law firm offers free initial consultations.
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Pittsburgh Bankruptcy Lawyers