Usually the answer is yes. But there are many factors that affect whether or not a person filing bankruptcy can keep their car or truck including how much your vehicle is worth, how much you owe on the vehicle and how far behind you are on the payments at the time you file for Chapter 7 bankruptcy.
Let me begin by talking to the people who have a loan and are making payments for their vehicle. You have three (3) choices:
First, you can surrender or give back the car.
You need to be honest with yourself and ask if it is in your financial best interest to keep your car or truck.
- Can you really afford the vehicle?
- Will your financial situation make it difficult for you to make the payments each month?
- Do you have equity in the vehicle or are you upside down owing more than the vehicle is worth?
If you can’t afford the payments, or you owe significantly more than your vehicle is worth, Chapter 7 bankruptcy will allow you to surrender or give back your vehicle and walk away without owing another penny. That can be a good deal for many people who are in a bind regarding their car or truck. Then you get something to drive that you can really afford. It may be just a “beater” but that’s OK if it will get you back and forth to where you need to go until you can save up for something better.
Second, you can redeem the car.
Redemption is the process of buying your car back from the bank/credit union/finance company for the fair market value of the car. Did you get that? Buying back for what the vehicle is really worth as opposed to what you owe for it. If you are substantially upside down, redemption can be a terrific deal.
However, redemption requires a lump sum payment and most people filing bankruptcy don’t have a large amount of cash just sitting around. But maybe a family member or friend could loan you the money. Or you can check with companies that specializes in financing vehicle redemptions such as 722 Redemption Funding. These companies charge high interest rates but it can still be a good deal since you would be significantly reducing the principal owed on the vehicle. If you are considering obtaining financing for a redemption, you should investigate the terms before filing for bankruptcy to make sure that you meet the qualifications for a redemption loan.
Third, you can reaffirm the car loan.
Reaffirmation is the renewal of a loan between a lender and a borrower. This means that if you sign a Reaffirmation Agreement, the bankruptcy will not discharge or wipe-out the vehicle loan. You would still owe that money to your vehicle lender and should you not be able to pay in the future, your lender would be able to pursue all legal methods of collecting that debt.
In order to reaffirm your car loan, you will need to be current on the car. And your budget must reflect that you have the ability to make the car payment without it being a financial hardship.
If you lease your vehicle:
If you are current on your lease payments, then you may assume the lease and continue with your contract if you choose. If the lease payments are too high, then you may wish to reject the lease and turn the car back into the dealership.
If you don’t owe money on your vehicle:
If you own your car or truck outright, meaning there is no loan on the vehicle, then in Oklahoma, you can keep the vehicle with no problem if it is worth $7,500.00 or less. Each bankruptcy debtor is allowed a $7,500.00 exemption for a motor vehicle so if a husband and wife file bankruptcy together, they can stack or combine their exemptions and protect a single vehicle worth up to $15,000.00. If the vehicle is worth more than the allowed exemption amount, then you would owe the difference. If you were unable to pay the Chapter 7 trustee the difference, then the trustee could take your vehicle, sell it at auction, and give you back $7,500.00/$15,000.00.
Each bankruptcy case is different, so the decision whether to keep or return a vehicle must be made on a case-by-case basis.
If you’re struggling with debt problems and would like to know more about how bankruptcy may be able to help you, contact Dan Nunley today by completing the “Contact Dan” form on the right side of this page. I’ll get back in touch with you as soon as I can to schedule a FREE initial telephone consultation. I would count it a privilege to be able to visit with you in a relaxed and confidential environment where I’ll answer all of your questions in plain English and give you the straight scoop on the pros and cons of bankruptcy as related to your specific situation.