Cars and Bankruptcy

Spokane has some great public transportation options, but the fact is you need a car in our city. So, when you are going through bankruptcy, it's normal to wonder how it will impact your car. Our attorneys have been helping folks just like you across Washington State for a combined 30 years. In that time, we've learned all the options you have for your vehicle during bankruptcy.

Call our Spokane County legal team now to schedule a free consultation. We'll be happy to answer any questions you have about your car and bankruptcy.

If you're facing the threat of car repossession, bankruptcy could provide immediate relief, as it triggers an automatic stay that prevents creditors, including car lenders, from taking action against you. Under 11 U.S.C. § 362, it prevents repossession, wage garnishments, foreclosure, and other collection efforts. While the automatic stay will stop car repossession for the time being, you will need to address the debt to keep your car. You may pay the loan in full, negotiate with your lender, or restructure your debt through bankruptcy. In Spokane, we can help you evaluate your situation and determine the right approach to keep your car and prevent repossession.

Whether or not you can keep your car during bankruptcy depends on a lot of factors. Under RCW 6.15.010, Washington lets you protect up to $15,000 of equity in one vehicle. Your equity is just the car's current value minus what you still owe on the loan.

• What If I'm Behind On My Car Loan (Secured Debt)?: If you're behind on car payments and want to keep your vehicle, Chapter 13 bankruptcy can give you a second chance. You catch up on missed payments through a court-approved repayment plan under 11 U.S. Code § 1322. This can be especially helpful if your car is essential for work or family needs. As long as the loan stays in place and you stick to the plan, you can usually keep the car and avoid repossession.
• What If I File For Chapter 7?: With Chapter 7, you've got a few options. If you want to keep the car and you're up to date on payments, you can reaffirm the loan. Basically, you agree to keep paying and hold onto the vehicle. If the numbers don't work, or the car is more of a burden than a benefit, you can also choose to surrender it and walk away from the loan.
• What If My Equity Is Too High?: Even if your car's value goes over the exemption limit, redemption is still an option if you can pay that difference. However, surrendering it might be the smarter move if it isn't essential to your daily life or you're underwater financially.

Our Spokane-based bankruptcy attorneys can help you assess your situation and determine which course of action to take to keep your car.

Whether or not you can discharge your vehicle's loan in bankruptcy depends on:

• The type of bankruptcy filed
• The value of your car
• Whether you're behind on payments

Here's how bankruptcy affects your car loan and what options you may have:

• Chapter 7 Bankruptcy: Under Chapter 7, the Spokane courts can discharge certain unsecured debts like credit card balances and medical bills. However, a car loan is secured debt because your vehicle acts as collateral, so the loan itself is not dischargeable under 11 U.S. Code § 523(a)(5). If you are behind on payments, the lender can still repossess your car unless you take action to protect it.
• Chapter 13 Bankruptcy: Chapter 13 gives you more flexibility. If the value of your car has dropped below what you owe, you may be able to reduce the balance of your loan through a process called a "cramdown." Under 11 U.S. Code § 1325(a)(5), the court may allow you to restructure the loan by lowering the principal to match the car's current market value. However, a cramdown is only allowed if you meet specific conditions, such as having purchased the car more than 910 days before filing.
• Negative Equity: If your car's value is less than what you owe (known as negative equity), you may be able to discharge part of the loan or include it in a Chapter 13 repayment plan.

In Spokane, our bankruptcy attorneys can help you understand whether you qualify for debt discharge or loan restructuring and guide you through the bankruptcy process. We're here to help you achieve a fresh start, whether it involves discharging your car loan or creating a plan to keep your vehicle.

No matter your financial situation, you need a car to get around Spokane. Fortunately, we can fight to help you keep your vehicle. Contact our bankruptcy attorneys now, and we'll review your case for free.