Your Car In Bankruptcy

For many of us, our car is our lifeline, so if you find yourself facing bankruptcy, you may be feeling a bit overwhelmed and worried. Many Olympia residents rely on their vehicles for work, school, and daily responsibilities.

If you’re considering bankruptcy in Washington, you might be wondering now if your car is on the chopping block. Will you lose your car? Should you keep making the payments? How does your bankruptcy impact auto loans?

We have answers to all these and more. Consulting a skilled Olympia bankruptcy attorney is a great way to get started on the right footing regarding cars and bankruptcy.

How Bankruptcy Affects Your Car in Olympia

Your vehicle is an important asset in a bankruptcy, so its fate depends on the type of bankruptcy you file and your financial situation. The two main types of bankruptcy that impact car ownership are:

Chapter 7 Bankruptcy: This is considered a liquidation bankruptcy, in which your non-exempt assets can be sold to pay off your creditors.

• If your vehicle has equity above Washington’s exemption limit, the bankruptcy trustee can sell it to pay off debts.
• If your car is worth less than the exemption amount, you can usually keep it.
• You need to be current on your car loan payments or risk repossession.
• If you still owe on your car loan, you will need to sign a reaffirmation agreement to continue making payments and avoid repossession.
• If you can’t afford your payments, you can surrender the vehicle and discharge any remaining balance you have on the loan.

Chapter 13 Bankruptcy: This is a reorganization bankruptcy that allows you to keep your assets while repaying your debts over time.

• You can include missed car payments in your repayment plan. This helps you catch up and avoid repossession.
• If your car loan has a high interest rate, Chapter 13 might allow you to reduce the interest rate as part of your structured repayment plan.
• If your car loan is older than 910 days (about 2.5 years), you may qualify for a loan cramdown, which lowers your loan balance to match the car’s current market value.
• You must maintain regular payments on your auto loan in addition to the Chapter 13 repayment plan.
• At the end of your approved repayment plan (usually three to five years), any remaining unsecured debts you have may be discharged. However, you still need to finish paying off your car loan if it isn't fully covered in the plan.

Keeping Your Car in Chapter 7 Bankruptcy

Chapter 7 is always a concern because your bankruptcy trustee can sell your non-exempt assets. However, there are exemptions under Washington State law that might protect your vehicle.

Your Olympia bankruptcy attorney can help you better understand where you fall and if these exemptions apply to your situation.

Washington State Vehicle Exemption (RCW 6.15.010)

• You can exempt up to $3,250 in vehicle equity.
• If the equity in your car exceeds this amount, the trustee may sell it to pay creditors.
• If you still owe money on your car loan and your equity is below the exemption limit, you may be able to keep it by continuing payments.

Reaffirmation Agreements

• If you want to keep your car and continue making payments, you may sign a reaffirmation agreement with your lender.
• This means you agree to continue paying the loan despite the bankruptcy discharge.
• Failure to keep up with payments after reaffirmation can lead to repossession.

Keeping Your Car in Chapter 13 Bankruptcy

Chapter 13 is much more flexible when it comes to being able to keep your car. Instead of liquidating the assets you have, you enter into the court-approved repayment plan.

This has many benefits for you, including:

• Allowing you to catch up on your payments while you keep your car
• Reducing the interest rate on your loan
• Cramming down the loan so you can lower the balance to its market value

Car Repossession Laws in Washington

• Right to Cure: Washington doesn’t have a mandatory "right to cure" period before repossession. This means your lenders can repossess your car as soon as you default.
• Notice of Sale: Per RCW 62A.9A-611, lenders must provide you with notice before selling your repossessed car.
• Deficiency Balance: If the lender sells the car for less than what you owe, you may still owe the remaining balance (RCW 62A.9A-615), but this debt can be discharged in bankruptcy.

FAQs About Cars and Bankruptcy in Olympia
How an Olympia Bankruptcy Attorney Can Get You Back Behind the Wheel

An Olympia bankruptcy attorney can help you keep or even regain your vehicle by using bankruptcy laws to stop repossession, protect your car under Washington exemptions, and negotiate better loan terms on your behalf.

Don’t feel that you have to take this journey alone. Our skilled bankruptcy attorneys are ready to help and get you back on track.

The bankruptcy laws recognize that it is important for a debtor to have an automobile. Often there is no way of getting a financial fresh start without a car to get you back and forth from work. Cars are among the important property that is exempt from being liquidated to pay creditors.

There are limits to how many cars you can keep and how expensive they can be. Both the federal and Washington car exemptions are around $3500. Your wildcard exemption can be stacked on top of the car exemption as well. If you have no home equity, the federal wildcard exemption is up to $11,975. The state wild card exemption is $3,000.

If you are still making payments on a car you have three options in a Chapter 7. You can surrender the car and walk away from the debt. If a car has been repossessed before a bankruptcy is filed and a debtor still owes some balance on the loan, this “deficiency balance” can be discharged.

You also can reaffirm the debt, keep making the payments and keep the car or you can redeem the car. The reaffirmation takes the loan outside of bankruptcy, so the risk of default is assumed by the debtor. If debtor falls behind of payments or lets insurance lapse, they could end up having to pay the loan even the car has been repossessed or destroyed in an accident. Sometimes a reaffirmation can be avoided and the vehicle can be retained by keeping up with the payments without a reaffirmation but the creditor has a right to repossess the car even if payments are current if the reaffirmation isn’t signed. Some creditors allow the debtor to retain and pay without a reaffirmation agreement, some do not.

A third option is a redemption. This option allows a debtor to pay off a car loan in a lump sum in the amount a car is worth. This is a good option if the car is worth less than the debt. There are some finance companies that specialize in redemption loans if the debtor does not have the cash to redeem. A motion must be filed to ask a bankruptcy judge to sign a redemption order. The only issue is what the car is worth, which is usually worked out by negotiating something fair with the creditor.

A Chapter 13 allows a debtor to consolidate the car loan with other debts and pay it off over time. If the car was purchased over two and a half years ago, the debt can be “crammed down”, meaning the loan can be paid at the value of the car. Interest can be reduced in all cases. A cram down is available when the car was refinanced or “negative equity” was rolled over into a new car loan as well.