Can You File for Bankruptcy and Keep Your Car?
If you consider filing a bankruptcy petition, you must make decisions concerning your personal possessions. With three bankruptcy chapters focusing on individual indebtedness, the basis for your decision rests on the chapter under which you file for relief. State and federal law exempts certain personal property from bankruptcy seizure. In some jurisdictions you may be able to choose which exemption law best fits your particular situation.
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What is Bankruptcy?
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Bankruptcy is a process whereby you can legally dissolve your debts if you no longer have the means to repay them. Bankruptcy allows for a fresh start, free from debt in the case of Chapter 7, which liquidates assets to pay creditors. In Chapters 12 and 13, individuals develop a repayment plan under the auspices of the bankruptcy court. The plan generally pays off debts within three to five years. If debt remains upon the successful completion of the repayment plan, the court discharges the remaining portion of the debt. Certain debts, such as a home mortgage, alimony and child support, do not discharge at the completion of a Chapter 12 or 13 payment plan.
Chapter 7
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To file for Chapter 7 bankruptcy relief you must qualify under the law's means test. The means test limits access to Chapter 7 to those who truly cannot pay their debts. Your attorney will assist you with determining your status. If you qualify, you file a petition with the federal bankruptcy court in the area where you live. If you want to keep your vehicle and its worth is less than the exemption allowed, you do not have to sell your car to satisfy debtors. If you have a loan secured by your vehicle's title, you may be able to reaffirm the debt at the discretion of the lender and the trustee assigned to your case.
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Chapter 13
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If you have unsecured debts of less than $360,475 and secured debts of less than $1,081,400 in the first quarter of 2011, you may opt for Chapter 13 bankruptcy protection. Under Chapter 13, a trustee assigned to your case evaluates the repayment proposal and initiates a plan for repaying your creditors. The trustee then collects payments from you and distributes them to creditors. Your repayment commitment depends on your monthly income. If the court confirms your plan, fund distribution commences. You may include the loan for your car in the plan, thus allowing you to keep the vehicle if you conform to the plan's structured payments.
Chapter 12
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If you operate a family farm or a family fishing enterprise and experience financial difficulties bordering on bankruptcy, you may access reorganization relief designed for your specific circumstances through a Chapter 12 filing. This chapter of the code is reserved for a family farmer or family fisherman with regular annual income. Limits specific to the operation, whether farming or fishing, apply to the amount of indebtedness and the reason for its existence. Vehicles, including the family car, may be included in the proposed reorganization, which allows you to keep the vehicle if you adhere to the plan's requirements.
Considerations
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Although mainly considered a business bankruptcy, individuals may file for debt reorganization under Chapter 11. With Chapter 11 the debtor proposes a reorganization plan that keeps the household afloat while repaying creditors over a reasonable time. Because major bankruptcy law changes have been instituted in recent years, consider consulting with a legal professional who has first-hand knowledge of current federal bankruptcy laws.
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