Bankruptcy provides an important opportunity to eliminate debts that you are struggling with and cannot pay. However, many people are reluctant to consider bankruptcy even when filing makes sense. This reluctance can stem from serious concerns about having to give up essential possessions such as your car. I frequently answer the question: Can I Keep My Car If I File Bankruptcy?
In Virginia, you need a car to get around, to get to work, to run errands and to engage in the community. The idea of giving up a car in bankruptcy can be enough to make you suffer under the weight of debt. That may not be necessary. Fortunately, you don’t always have to make a choice between fixing your debt issues and keeping your vehicle. In the vast majority of cases, you can keep your car.
Filing for Chapter 7 or Chapter 13 and keeping your vehicle
If you file for Chapter 7 bankruptcy, you may be required to turn certain possessions over to the bankruptcy trustee. The trustee will then sell those assets and use the proceeds to repay your creditors. It’s called “liquidation,” and it can cause debtors to worry about losing their cars.
Bankruptcy exemptions, however, allows you to keep certain property. Low-value cars that aren’t worth much typically fall within the exemptions. So unless you have an expensive car worth thousands of dollars, you will probably be able to keep your vehicle during the Chapter 7 process.
You do not have to worry about this issue at all when it comes to a Chapter 13 bankruptcy. Chapter 13 doesn’t require you to turn over any of the possessions that you have.
Chapter 7 car loan in Virginia:
Keeping your car and your car loan
Another factor that is whether you have a car loan. If you owe money on your vehicle, you may wonder if you can have your car loan debt forgiven and still keep the car. The answer to this question is, sorry, but no.
A car loan is a secured loan and you either have to repay the loan or give up the vehicle. Bankruptcy does not change this. You can simply wipe out unsecured debts in bankruptcy such as credit cards, personal loans, and medical bills. But you cannot just get rid of a car loan while also keeping the car. You can choose, however, to discharge the loan if you intend to surrender the vehicle.
What if your car is worth less than the loan?
If your car is worth less than you owe on it, you still likely can keep it if you want to. But you’ll need to decide if it makes financial sense to do so. Sometimes, your lender will be willing to negotiate with you in order to reduce the balance rather than repossessing and auctioning off the car.
Under limited circumstances, you may also pursue a “cramdown” under Chapter 13, where the value of the loan can be reduced to what the car is actually worth and the remaining balance can be considered unsecured debt to be partially repaid in a 3-5 year Chapter 13 repayment agreement. Whether a cramdown is possible in your case or not is going to depend on the circumstances, and an experienced bankruptcy lawyer can help you to determine if this is an option for you.