Can You Keep Vehicles & Boats in a Bankruptcy?
While filing for bankruptcy provides you immediate relief from your creditors, it doesn't necessarily protect all of your assets, such as vehicles and boats. A number of variables determine if you can keep a car and a boat in your bankruptcy case, including the state where you file bankruptcy, the type of bankruptcy you file and whether or not you still have an outstanding loan against your assets.
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State Bankruptcy Exemptions
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Each state allows you to keep certain assets in a Chapter 7 bankruptcy through the use of exemptions. An exemption specifies both the type and value of property you can keep. Some common exemption categories include personal property, pensions, and motor vehicles up to a certain amount. If the net equity of the property you own exceeds the exemption level in your state, you may have to turn it over to the bankruptcy court for liquidation to help satisfy your creditors.
Secured Debt and Liens
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If you have a loan against your boat or vehicle, exemptions work a bit differently. For example, if you live in a state with a $5,000 vehicle exemption, you can keep a car with a value of $5,000 that you own outright. However, you could also keep a car with a value of $50,000 if you had an outstanding car loan of $48,000 against it, as you would only have net equity of $2,000. If your net equity in a car or boat exceeds your state exemption level, the bankruptcy trustee will sell the asset and pay you the amount of the exemption. The balance will go to your creditors.
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Repossession
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Although your car may survive liquidation by your bankruptcy trustee, you will still have to face your lender after you complete your bankruptcy case. While unsecured debt such as credit card debt is generally discharged in bankruptcy, secured debt such as a car or boat loan usually survives. If you cannot make payments on your car, while the bankruptcy trustee may not take it, your lender will most likely repossess it.
Reaffirmation & Redemption
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Two options can help you avoid repossession during and after a bankruptcy case. If you reaffirm your car or boat loan, you can continue to make payments on the loan as if your bankruptcy never occurred. Redemption allows you to pay your lender the secured amount of the loan and discharge the balance in your bankruptcy case, after which you keep the asset. For example, if you owe a lender $10,000 on a boat valued at $8,000, you could pay the lender $8,000, discharge the remaining $2,000 in bankruptcy and keep the vessel.
Chapter 13 Bankruptcy
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In a Chapter 13 bankruptcy, all of your debt is combined into one pool and you must make payments to the bankruptcy court to help pay off that debt. Secured creditors such as those holding a lien against your boat or car receive priority over unsecured creditors such as credit card companies. You must make enough payments in a Chapter 13 plan to pay off your secured debt, although you no longer have to pay interest and penalties on your existing debt.
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