Two main types of bankruptcy are Chapter 7 and Chapter 13. These procedures help people liquidate some of their assets and pay off their debts.
While chapter 7 generally involves selling some of your assets, chapter 13 is focused on paying off other debts. If you own a car, the vehicle may be affected by the type of bankruptcy you file.
A chapter 13 bankruptcy is the bankruptcy type that allows a person to renegotiate the terms of their secured debts. For example, if a person has a car loan that is worth only $6,000, they could get rid of it by taking advantage of the lower value of the asset.
A person who has a car loan with a balance of $10,000 may now pay the monthly payment based on its actual value, which is $6,000. It is a powerful tool for those in financial distress and can help them avoid making another costly payment.
What will happen to my car if I file for bankruptcy?
If you are drowning in debt and cannot pay it, filing for bankruptcy may be the last resort to get out of it. In fact, it can help you get back on track and rebuild your credit. Some factors go into deciding if you will be able to keep your car during the bankruptcy process.
Since a car is considerably an asset, it is possible that creditors will pursue it to collect debts. However, Aside from being considered an asset, your vehicle may also be exempt from the collection process under certain conditions:
- The bankruptcy type that you are filing
- Either you lease, own, or still financing the vehicle
- The vehicle’s value
- What exemptions apply where you live
If you file for bankruptcy, it can clear some debts, but it can also require selling or donating some assets to pay them. Local bankruptcy laws and Chapter 7 bankruptcy can also allow you to keep the vehicle you own as long as your loan payments are ongoing. If the market value of the vehicle is less than the amount you own outright, then you are in the clear.
Since vehicles tend to lose value quickly, it is important to know how much equity you have in them before they go back to the market. Generally, if you have less than the vehicle’s exemption limit, it is protected.
Can I keep my car if I file for bankruptcy?
Most people are able to keep their cars after filing for bankruptcy. However, if you need to keep both your car and your financial situation at once, then it is important to know what a bankruptcy filing means.
How long should I wait after filing bankruptcy to get a car loan?
Ideally, people should wait at least six months before applying for a car loan again. This will give them time to repair their credit and build a positive history.
Monitoring Your Credit Score
Being able to monitor your credit report regularly can help you keep track of how your bankruptcy is affecting it and how you can improve it. It can also help you avoid making mistakes that could harm your score.