Cars and Bankruptcy

Filing for bankruptcy can be a tough decision, but you might also find that it’s the best way to relieve you of your overwhelming debt. If you own a car, you may wonder how bankruptcy will affect your vehicle. Whether you’re facing Chapter 7 or Chapter 13 bankruptcy in Vancouver, Washington, understanding the impact on your vehicle is important.

You don’t have to face these challenges alone. Don’t hesitate to consult a skilled Vancouver bankruptcy attorney if you have questions or are unsure if bankruptcy is the right avenue to take.

When you file for bankruptcy in Washington, your car is one of your more valuable assets. Bankruptcy laws aim to help you eliminate or repay your debts while still protecting your essential property (like your car). However, the fate of your car comes down to a few things.

In a Chapter 7 bankruptcy, non-exempt assets can be liquidated to pay off your creditors. These include cars that exceed exemption limits.

• Exemption Limits: Under Washington State law (RCW 6.15.010), you can exempt up to $3,250 of equity in your car as a single filer. A married couple can double this to $6,500. If your car is worth more than the exempted amount, the bankruptcy trustee can sell it off to pay your creditors.
• Secured Loans: If you have a car loan, the lender holds the lien on your vehicle. If you have fallen behind on payments, the lender can repossess the car, even during bankruptcy, unless you make arrangements to keep it and bring the missed payments up to date.

A Chapter 13 bankruptcy lets you keep your car, even if it has significant value. Instead of liquidating your assets, you propose a repayment plan to pay back a portion of your debts over a three- to five-year time span.

• Car Payments: Cars are treated as secured debts in a Chapter 13. Depending on your situation, you might be able to lower your monthly car loan payments or even reduce the total amount owed on your car through a process called cramdown.
• Exemption and Equity: Chapter 13 also lets you keep your exempt property, including your vehicle. If your car’s equity is above the exemption limit, you might need to contribute more to your repayment plan to make up for the non-exempt portion.

If you want to keep your car during bankruptcy, you have a few possible options for doing so:

• Reaffirmation Agreement: In Chapter 7 bankruptcy, you can reaffirm your car loan, which means you agree to continue paying for the car as if you never filed for bankruptcy in the first place. The lender will have to approve this agreement, and you will continue making regular payments on your loan.
• Redemption: In some cases, you may be able to redeem your vehicle in Chapter 7 bankruptcy. This means you pay the current value of the car (instead of the full loan amount) in a lump sum to retain ownership. However, this option may not work for everyone.
• Cramdown: In Chapter 13, you might qualify for a cramdown if you owe more than your car is worth. A cramdown lets you reduce the principal balance of the vehicle to the current market value, which can potentially lower your monthly payments.

Numerous laws govern the handling of cars in Clark County bankruptcy cases.

As we have already touched on, there are exemption limits for your personal property, including your car.

• The exemptions determine how much equity in your car is protected during bankruptcy.
• If your car's value exceeds the exemption limits, it could be sold in Chapter 7 bankruptcy.

• This statute governs the rights of creditors who hold a lien on your car and addresses repossession and lien enforcement in bankruptcy cases.

• This section of the federal Bankruptcy Code outlines the rules for secured debts, including car loans. It provides the legal basis for cramdowns and other options you have to reduce the debt you owe on your car in a Chapter 13 bankruptcy.

In Clark County, as in the rest of the state, a car repossession is a big concern for those filing for bankruptcy. If you are behind on your car payments, the lender can take the vehicle back. However, there are steps you can take to avoid this:

• Filing for Chapter 13 bankruptcy automatically triggers the automatic stay, which stops all creditor actions, including repossession. If your car is in danger of being repossessed, Chapter 13 can help you catch up on payments over time, so you can keep your vehicle.

• In both Chapter 7 and Chapter 13 bankruptcy, you might be able to negotiate with your creditors for more favorable terms on your loans. For example, you could negotiate a deal to reduce your car loan or enter into a reaffirmation agreement that allows you to retain the vehicle.

Filing for bankruptcy in Vancouver doesn’t automatically mean you are going to lose your car. There are several options available to help you keep your vehicle or manage your loan more effectively.

Working with one of our skilled Vancouver bankruptcy attorneys can help you make the right decisions for your financial situation. We will help ensure that you have a chance at protecting your car and regaining financial stability.