If you’re like most people, you rely on your vehicle to get to work and school, to run errands, and to visit those you care about. That’s why it can be incredibly stressful to worry that you may lose your vehicle if you need to file for bankruptcy.
If you plan to file for Chapter 7 bankruptcy, then it is critical to understand what types of property are eligible for repossession and what property is exempt if you still owe money to creditors.
How Much Debt Do You Owe On Your Vehicle?
One of the deciding factors as to whether or not you will be able to retain your car is the debt that you still owe on the vehicle. The courts will examine the equity of your vehicle when determining whether or not it is exempt from repossession by creditors. If your vehicle’s value is greater than the amount you owe on the car, then your vehicle would be exempt from repossession. But if the amount you owe is less than the value of the car, then the vehicle would not be exempt and creditors could legally repossess it.
When you file for Chapter 7 bankruptcy in Virginia, the state offers you $6,000 in equity to safeguard your vehicle. If your car is valued at $3,500 and you haven’t taken out a car loan, then you have sufficient equity to keep your car.
What If I Took Out A Car Loan?
If you took out a car loan and are filing for Chapter 7 bankruptcy, then there are several things you could do in order to try and keep your vehicle:
Surrender – If you give up your vehicle, then you could walk away free from any car debt. Chapter 7 dictates that when you surrender a vehicle, you will not have to make any more car payments.
Reaffirm – Another option is to reaffirm the debt. A car loan is a type of secured debt, which means that if you default and then file for bankruptcy, the vehicle can be used to pay off the creditor to whom you still owe money. If you decide to reaffirm the debt, it means that you agree to get current and that you will continue paying down the car loan. In this instance, you would continue to be responsible for this particular debt after the Chapter 7 bankruptcy process ends. You might be able to negotiate an alternative repayment plan with the creditor.
Redeem – You could also attempt to retain the vehicle by redeeming it. When you redeem a vehicle, you pay the creditor the vehicle’s current value as a single payment to erase your debt. If your vehicle is currently valued at $4,000 and you owe $7,000 on it, you could pay the lender $4,000, and the remainder of the debt would be discharged due to Virginia’s $6,000 equity exemption. Although you would have to pay a lump sum, which might be difficult for those in dire financial situations, you could end up paying a lot less than you would if you redeemed the car. It’s possible that a dispute could arise if your creditor disagrees on the car’s value, but a judge can step in to resolve the matter in that case.
Contact A Bankruptcy Attorney Today
Filing for Chapter 7 bankruptcy can be stressful and confusing, especially if you are concerned about losing your vehicle. That’s why it is crucial to consult with an experienced Virginia bankruptcy attorney at The Law Office of Steven D. Barnette. We have five conveniently located offices in Gloucester, Hampton, Newport News, Tappahannock, and Abingdon to serve you, so contact us today for a confidential consultation.