Your Car in Bankruptcy in Seattle

Filing for bankruptcy is definitely one of the more challenging decisions you might have to make in your lifetime. However, it can provide relief from overwhelming debt, including car loans. In Seattle, Washington, understanding the intersection between bankruptcy and car ownership is essential if you are facing financial hardship.

So, whether you’re dealing with a car loan you can no longer afford or want to protect your vehicle during bankruptcy proceedings, a qualified Seattle bankruptcy attorney can help you understand your options and guide you through the process.

Most Seattle residents file for either Chapter 7 or Chapter 13 bankruptcy, which have different effects on cars.

• This bankruptcy type is designed to discharge most of your unsecured debts (credit cards, medical bills).
• If you have a car loan, the fate of your vehicle depends on its value.
• Washington State’s exemption law (RCW 6.15.010) allows up to $3,250 in equity for your vehicle.
• If your car is worth more than the exemption, it can be sold to pay your creditors.
• If it’s worth less, this typically means you can keep it.

• This bankruptcy type involves repaying your debts over three to five years.
• You can keep your car, even if you’re behind on payments.
• Something known as a cramdown can reduce your car loan to the current market value, which can lower your payments.
• Under Washington law, this makes it easier to catch up on all your missed payments.

A bankruptcy attorney in King County can help you choose the right chapter for your particular situation.

It’s important to understand the difference between secured and unsecured debt when you are considering filing for bankruptcy in Seattle.

These are typically backed by some kind of collateral. In the case of a car loan, the vehicle itself serves as the collateral for the loan. If you don’t make your payments, the lender has the right to take the vehicle back through repossession.

• In Chapter 7, you might have to reaffirm the debt, which means agreeing to continue payments to keep the car.
• If you file for bankruptcy, this debt is not automatically discharged unless you take action.
• Washington State law allows you to protect your secured property (car) if the value is within the exemption limits.
• The wildcard exemption may also be used in some cases to cover up to an additional $4,000 worth of property. This could include the excess equity in your car.

The wildcard exemption could mean that if your equity is higher than $3,250, you could potentially apply the wildcard exemption to protect that extra equity, up to a combined total of $7,250.

Unsecured debts are those not tied to any kind of property. Examples of this include credit cards, medical bills, and personal loans. No collateral backs them up, so the creditor can’t seize any of your property if you fail to pay them.

Again, unsecured debts don’t directly affect your car. However, it can make it more difficult to keep up with your payments if you owe a significant amount in unsecured debt.

• Filing for bankruptcy can help eliminate or reduce unsecured debt to free up income and help you keep your car.
• In Chapter 7, most debts are discharged, which means they are erased. While this doesn’t affect your secured car loan, it can still improve your financial situation and allow you to focus on keeping your car and making the payments.
• In Chapter 13, you must repay part or all of your unsecured debts over a payment period. If you have significant unsecured debt, this plan can potentially free up money to ensure that your car payments are manageable.

A Seattle bankruptcy attorney can help you navigate the distinction between secured and unsecured debts, guide you on ways to protect your car, and make sure you take full advantage of Washington’s exemption laws.

A Seattle bankruptcy attorney with years of experience throughout Washington can help you understand your rights under state law, help you apply for the right exemptions, and advise you on the most suitable course of action to keep your car.

Whether filing for Chapter 7 or Chapter 13 bankruptcy in King County, your attorney will ensure that you understand your options so you can avoid losing your vehicle.

There are many ways to protect your car in a bankruptcy.  In a Chapter 7, you have three basic options:

1. You can reaffirm the debt and keep making car payments like always. Though a reaffirmation agreement isn’t always necessary, a car company can repossess a car after a Chapter 7 even if you are current with the payments. Some car companies will not do this, but they have the right to.  Because a reaffirmation excludes the car debt from your discharge, you should be careful when signing it. You should be sure that you will be able to make the payments because you could be liable for the part of the debt that is not paid when the car is auctioned off if it is repossessed.  This part of the debt is called a “car deficiency,” and if it occurs before filing a bankruptcy, it can be totally wiped out. You don’t want to have no car and a car deficiency to deal with after you file bankruptcy. However, if you can make the payments, keeping current on a reaffirmed car debt is a good way to reestablish credit after filing.
2. You can surrender, or give back, your car to the car company in bankruptcy. That way, you can walk away from an unaffordable car debt and not worry at all about how much the deficiency might be. After you file your case, your car is protected from repossession for at least a month, probably more, and that will give you time to find alternate transportation.
3. A third option in Chapter 7 is a redemption. That allows you to pay the car loan off and keep the car by paying only the value of the car. If you do not have access to the cash to do this, there are banks that specialize in making redemption loans.

A car is an asset in a Chapter 7.  The equity in the car (or in the case of paid in full cars, the total value) is protected by a car exemption, which is around $3500 under state and federal exemptions. You can also stack a wildcard exemption on your car, which is as much as $11,975. If your primary car or additional cars can not be exempted, sometimes you can offer to “buy out” the trustee’s interest in the car by offering cash instead of the car itself. You can also file a Chapter 13 and pay the money that would have been generated by a liquidation of the car over five years.

A Chapter 13 allows you to pay a car loan off over three to five years. With cars that were purchased over two and a half years ago, you can pay only the value of the car through the Chapter 13 plan. You can reduce interest and monthly payments as well. Once you complete the plan, you get the title to the car no matter how much you ended up paying. Your plan does need to be approved by a bankruptcy court first, and you may find yourself negotiating back and forth with a finance company before the plan can be approved. Having a good lawyer on your side is always essential to having your bankruptcy plan approved or “confirmed” by the bankruptcy court.

Call us today or request an appointment to talk to an experienced bankruptcy lawyer at Washington State Attorneys. We can help you.