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Filing for bankruptcy while keeping your car

If you have been thinking about filing for Chapter 7 bankruptcy, chances are you have worried about what will happen to your main mode of transportation -- your car, truck or motorcycle -- in the bankruptcy case. Fear not, for the majority of debtors emerge from bankruptcy with their rides intact. Here's how the laws affect your situation: First, if you own a vehicle outright, you will try to have it declared exempt. In the states that allow debtors to use the federal bankruptcy code list of exemptions, up to $3,450 in vehicle equity can be declared exempt. Married debtors can exempt two vehicles with a $3,450 limit for each. If your state does not allow you the federal exemptions, there will be an alternate amount you can exempt under the state law, but the exact amount will vary from state to state. If your car is owned outright and worth more than $3,450, you may be able to exempt the rest of it through the use of "wild-card" exemptions. Under the federal system, you can apply almost $12,000 of wild-card exemption credit to any piece of property you own, vehicles included. Some state exemption schemes have a wild card exemption as well, with the amounts varying from place to place. Still over the limit? if you are not too far over, you may be able to "buy back" the non-exempt portion from your bankruptcy trustee, or he may excuse it anyway if the overage is really small. If you are far over the limit, and really love the car, you might consider filing a Chapter 13 case instead. If you still have an outstanding loan on a vehicle, first ask yourself if you are completely caught up on all the payments. If so, the best option is a "pay and drive" arrangement with your lender -- you keep making the payments and you keep the vehicle. However, changes to the bankruptcy law in 2005 now allow lenders to seek "reaffirmation agreements" from debtors as a condition to keeping the vehicle. These are essentially contracts to renew the debt despite bankruptcy. Local practice varies widely in this area -- in Massachusetts, "re-affs" are frowned on because state law prevents repos on paid-up vehicles -- but that could be a dangerous assumption elsewhere. Ask a bankruptcy lawyer! If you have a car loan and are behind on it, you might want to consider a Chapter 13 filing, where you make up the arrears over time. Or it might be time to bite the bullet and turn the vehicle in and go with something simpler you can own outright. One great advantage of our bankruptcy process is that if allows debtors to be flexible -- a debtor determined to keep a vehicle will (with the help of a lawyer) usually find a way, while someone else determined to shed a burdensome auto loan can use the bankruptcy code to achieve their goal as well. Much of the same is true, by the way, for leased vehicles. Debtors can continue to make the lease payments, or they can elect to "reject" the lease, which involves turning the car in and having the bankruptcy court discharge any remaining debt on the lease.

Additional resources provided by the author

Here's an article about how the rules on reaffirmation agreements for vehicles can vary greatly from region to region:

http://www.bankruptcylawnetwork.com/filing-bankruptcy-and-reaffirmation-agreements/

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