Can I Keep My Car If I File for Chapter 7 Bankruptcy in Texas?
Bankruptcy is a big decision, and while it can be the right one in some situations, it’s always important to go into it carefully and with the advice of a Chapter 7 bankruptcy attorney. If you’re considering Chapter 7 here in Sherman, TX, you might be wondering about your car. Here’s what you need to know.
From a Chapter 7 Bankruptcy Attorney in Sherman, TX: Bankruptcy and Your Car
Whether you can keep your car is going to depend on the value of the car, the nature of secured debt, and whether you have room in your bankruptcy exemptions for the equity on your car.
Exempt vs. Non-Exempt Assets
In Texas, there are laws that prevent certain assets from being seized, either by creditors or to be put up for sale by a bankruptcy trustee. There are motor vehicle exemption laws, and these will protect your car up to a certain point. As long as the equity on your car is lower than the exemption limit, you should be fine.
Your car’s “equity” is its current market value minus anything you still owe on the loan. If your car is worth less than what you owe on it, or close to that, or if it comes under the exemption amount, then you will probably be able to keep it.
If you still owe money on your car, be aware that while you technically do not have to pay off the loan, if you don’t, the creditor can take the vehicle.
Figuring Out What Your Car Is Worth
The best way to get a handle on all this is to start by looking at the Kelley Blue Book value of your vehicle. You are allowed to exempt one vehicle per licensed driver in your home, and even if you have someone in the home who does not have a license, so long as they are dependent on that car, it can also be exempt. There is a cap on the total value of your personal property that you are allowed to keep exempt from bankruptcy, and that cap is $50,000 for one person or $100,000 for a family. Any vehicles and their value are added to that total.
So the good news is that it’s very likely a used vehicle will qualify for exemption, especially if you still owe on it, as the final equity is determined by subtracting what you owe from the vehicle’s worth. The bad news is that, if it’s a fairly high-value vehicle and/or you have paid off a lot of it, it could eat up most of your total personal exemption. Alternatively, while it may be exempt, you may still struggle to pay off the loan to keep it.
Strategies to Protect Your Vehicle
If your vehicle is paid off, you may need to employ some special strategies to keep your car from being sold off. The most common strategy, of course, is to include it in your total personal exemption. But if your car has some non-exempt equity, you might be able to offer a lump sum payment to deal with that. You might also be able to negotiate it as an asset in exchange for something else. A bankruptcy lawyer can help you figure out the best strategy for protecting a vehicle you really need.
Dealing With the Trustee
The bankruptcy trustee who will deal with your case is the major player here and has a big say in whether you’re going to be able to keep a car that has too much equity. The job of the trustee is to sell your assets to pay all the unsecured creditors, and, as part of this duty, will very carefully look into any exemptions you’re trying to claim.
That’s why it’s so important to have a bankruptcy attorney help you. A bankruptcy attorney will be able to help you make the proper declarations, negotiate agreements, and best protect your car and any other assets from any unnecessary risk.
The “Reaffirmation Agreement”
This is a legal document in which you agreed to continue paying the loan on a vehicle you don’t yet own outright after bankruptcy, including the interest rate that the lender sets, in exchange for keeping it. You have to get approval from the bankruptcy court for this, as well as an agreement from your lender. You can get a reaffirmation agreement not only for your car, but also for certain other goods that you may particularly need.
Not everyone qualifies for these agreements, however, and you can expect the court to look very carefully into your financial situation to decide for itself whether it believes that you can manage the payments in addition to your regular expenses. It’s very important that you go into these reaffirmation agreements carefully and only with experienced legal advice. If you fail to make the payments after you’ve already declared bankruptcy once, you will lose the asset and take a big hit on your credit report, even though you filed for bankruptcy.
Understanding Secured vs. Unsecured Debt
Secure debts are debts that you owe on an asset that has value and which can be repossessed by the creditor, such as a mortgage on a home or a loan on a vehicle. If you are making mortgage payments, for example, and then you stop while you still owe the lender money, the lender can eventually take the house back. The same is true of a car.
The contrast here is to unsecured debt. With unsecured debt, most notably credit card debt, there is nothing specific for the lender to seize if you fail to make payments. When you file for bankruptcy, all attempts by all creditors to collect their debts from you are temporarily paused while the court works things out in three areas. First, certain assets have are exempted from the process entirely. Second, your secured assets you may be able to keep, so long as you can keep making the payments. Finally, your unsecured debt is what the bankruptcy trustee will deal with by selling off all your other assets to pay off those creditors.
Other Allowed Personal Exemptions (Besides Your Car)
As mentioned above, the equity in your vehicle, if it is exempt, is added to the total personal exemption you’re allowed to take. You can only exempt a maximum of $50,000 worth of personal property if you’re single or $100,000 if you have a family. You have to think carefully about what items you wish to exempt, because many things qualify, but all of them may be valuable items that you need or want, and compromise will likely be necessary.
For example, home furnishings and family heirlooms can be exempted, as can clothing and food. You can also exempt a certain amount of jewelry and up to two firearms, sporting equipment, animals, including your pets and domestic animals, plus their food up to a certain limit, and tools that you need for work or farming and vehicles that you require for work or on a farm or ranch.
For help with your bankruptcy case and in protecting your car and other assets, reach out to the Pelley Law Office in Sherman, TX. We also serve Dallas and Plano.
Contact Our Texas Bankruptcy Law Firm For Help Today
If you’re facing bankruptcy in Texas, we’re here to help. Contact the experienced bankruptcy lawyers at Pelley Law Office, L.L.P., today to schedule a free consultation.
We proudly serve Plano, Dallas, Sherman, and the surrounding areas.
Pelley Law Office L.L.P. – Plano Office
Address: 1312 14th St, Plano, TX 75074
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Phone: (903) 813-4778
Hours: 24/7
Our firm is located near you. Find us with our GeoCoordinates: 33.6445846,-96.6113141,857
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