Can I Protect My Car in Bankruptcy?
Bankruptcy provides individuals and businesses with financial relief by allowing them to restructure their debts or eliminate certain obligations. If you find yourself in a situation where bankruptcy is the best option for your financial future, you may be concerned about what will happen to your car. Will you be able to keep it, or will it be seized by the bankruptcy court?
When it comes to protecting your car in bankruptcy, it primarily depends on the type of bankruptcy you file, the value of your car, and the applicable exemption laws. Let’s explore these factors in more detail.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, also known as liquidation bankruptcy, a bankruptcy trustee is appointed to sell non-exempt assets to repay as much of your debts as possible. However, many states, including Virginia, have provided certain exemption laws that allow debtors to protect specific assets.
Virginia law provides a motor vehicle exemption in bankruptcy proceedings, known as Virginia Code Section 34-26.1. Under this exemption, you can exempt up to $6,000 of equity in your car, or up to $12,000 if you are over the age of 65 or disabled. Equity refers to the value of your car minus any outstanding loans or liens on the vehicle.
For example, if your car is worth $14,000 and you still owe $8,000 on your car loan, the equity in your car would be $6,000 ($14,000 – $8,000). In this scenario, if you are eligible for the exemption, you can protect your car in Chapter 7 bankruptcy because the equity falls within the allowable exemption amount.
However, it is crucial to note that if the equity in your car exceeds the exemption amount, the bankruptcy trustee may sell the vehicle to repay your creditors. In such cases, you may have the option to negotiate with the trustee, redeem the vehicle by paying the fair market value, or reaffirm the car loan, which allows you to keep the car while continuing to make payments.
Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, also called reorganization bankruptcy, individuals have the opportunity to create a repayment plan to pay off their debts over a period typically ranging from three to five years. Unlike Chapter 7, Chapter 13 bankruptcy does not require the liquidation of assets.
Under Chapter 13, you can often protect your car by including it in your repayment plan. However, similar to Chapter 7, the equity in your car plays a significant role. If the equity in your car exceeds a certain threshold, it may affect the amount you need to repay your unsecured creditors.
The specific rules for calculating the treatment of your car in Chapter 13 bankruptcy can be complex, as they depend on various factors, including the specific terms of your repayment plan and the value of your vehicle. Consulting with an experienced bankruptcy attorney is essential to ensure your rights are protected and the best outcome is achieved.
Determining the Value of Your Car
When assessing the protection of your car in bankruptcy, it is crucial to know the value of your vehicle. The bankruptcy court will likely rely on either the NADA or Kelley Blue Book value to determine its worth.
It is important to be honest and provide accurate information about the value of your car during the bankruptcy process. Failing to do so may lead to serious consequences, including potential denial of your bankruptcy discharge, penalties, or even criminal charges. Disclose any outstanding loans or liens on your vehicle as well.
The Role of the Bankruptcy Trustee
The bankruptcy trustee plays a crucial role in both Chapter 7 and Chapter 13 bankruptcy cases. Their responsibility is to review your financial situation, administer your bankruptcy estate, and ensure that your creditors receive as much repayment as possible.
If you file for Chapter 7 bankruptcy, the trustee will evaluate your car’s value, the equity, and the applicable exemptions. If the equity falls within the allowable exemption amount, your car will likely be protected. However, if the equity exceeds the exemption, the trustee may sell the vehicle to repay your creditors, subject to any negotiation or redemption options discussed earlier.
In Chapter 13 bankruptcy, the trustee will also evaluate the value and equity of your car but within the context of your proposed repayment plan. Your attorney will work with you to establish a plan that ensures your car is adequately protected while adhering to the applicable bankruptcy laws and requirements. It is important to have a knowledgeable attorney by your side during the bankruptcy process. They will guide you through the complexities, protect your rights, and help you achieve the best outcome for your financial situation.
Remember, bankruptcy laws can be complex, and the outcome of your case may differ depending on various factors. This article provides a general overview, but it is not a substitute for legal advice. If you find yourself considering bankruptcy and have concerns about protecting your car or any other assets, consult our firm’s experienced bankruptcy attorney in Roanoke to ensure you receive the proper guidance tailored to your specific circumstances.
