Keeping a Vehicle within a Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy filing, most of the debts are discharged. However, one thing most consumers worry about is that they’ll lose everything, such as personal property, but that is not the case. Although a Trustee may have the debtor give up their nonexempt property to use the proceeds to pay unsecured creditors – there is various exemption laws that allow a debtor to protect certain property in a bankruptcy, one of those being motor vehicles. Now, whether you can keep your vehicle depends on certain things, such as – whether the equity is exempt and/or whether you are currently behind on payments.

Commonly, the debtor may seek reaffirming the debt of the vehicle. This is done through a reaffirmation agreement. A reaffirmation agreement is a contract between the debtor and the vehicle loan/lease creditor to keep your vehicle under the same terms, or similar terms, of the initial promissory note signed when the debtor first purchased the vehicle. In most cases, the bankruptcy court will need to approve the reaffirmation agreement. Approval of the reaffirmation agreement is based on whether the terms are in the best interest of the debtor. The court will take into account their income, debt, and the current value of the vehicle into consideration. If an attorney is representing the debtor, the attorney could also attest that it entering into the reaffirmation agreement is in the debtor’s best interest.

Most vehicle loan lenders do not want a debtor to surrender their vehicles and/or get rid of their obligations to pay the debt owed. However, if the debtor finds themselves unable to commit to the current vehicle payment amount, surrendering the car to the creditor within the bankruptcy may be the best option.

Please feel free to contact the Law Office of Ray Garcia, P.A., at 305-227-4030 or via email at legal@raygarcialaw.com for a free consultation.