One of the questions that people often ask about bankruptcy and filing Chapter 7 is whether they will be able to keep their car. The car exemption is especially important to those who have paid their auto loan off and owe nothing on the vehicle. Many Florida residents want to know if they can pay the trustee and keep the car since it is often the only form of transportation that they own.
Laws regarding bankruptcy exemptions are different in each state. With that said, it may be possible to keep a car if it is the sole transportation that a person has. The decision is often based on the amount allowed for the exemption. While a person may be granted $1,000 equity for a car, for example, the car may be worth much more. If the equity in the car is $3,000, but the filer is only allowed $1,000, then the trustee might see the vehicle or may agree that the filer pay $2,000 to keep it.
There are essentially three options. A bankruptcy filer could just surrender the car to be sold. In most states, the amount of money that was protected from the bankruptcy (in this case $1,000) will be given to the debtor and the rest will be kept for the creditors. The filer could then use the $1,000 to buy a cheaper car.
It is also possible to settle with the trustee by paying off the part of the car that is not protected by the exemption. Of course, that can be difficult for a person in bankruptcy. Some will also decide to change from Chapter 7 to Chapter 13 in order to keep their cars. If a debt reorganization plan is approved by the court in a Chapter 13 proceeding, the filer will typically have between three and five years to pay off the loan according to the plan.
For those who have decided to file bankruptcy in Florida, an experienced bankruptcy lawyer can help determine whether Chapter 7 or Chapter 13 is right for the client. The attorney can also answer any questions pertaining to the car exemption and help the client understand how to protect a vehicle during the bankruptcy process. The more informed that a person is, the better decision that he or she can make for the future.
Source: bankrate.com, “3 options to protect your car in bankruptcy“, Justin Harelik, Accessed on June 19, 2017