Category Archives: Vehicles

How To Get Rid Of Your Car In Bankruptcy

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You might want to know how to get rid of your car in bankruptcy. But if you really want to know how to keep your car through your bankruptcy case, that was the subject of an earlier post (linked above).

Not everyone wants to keep their car through bankruptcy. Sometimes, the monthly car payment is too high, or the car has developed problems that require expensive repairs in order to keep it in good running order. And sometimes you just decide that you no longer need the car at all.

Especially in northern New Jersey, not everyone needs a car for work. Many people work in NYC or within the urban area not far from where they live, such as within Jersey City or Newark, and they take public transportation. It happens that people often make the transition from having to drive to work – say, to a more suburban area of New Jersey – to being able to take public transportation to get there.

Car Loans Are Dischargeable In Bankruptcy

First, you should know that your car loan is dischargeable in bankruptcy, just like credit card debt. Decide whether you need a car after bankruptcy. This decision will help guide your next actions.

If You Need Another Car

While you are in a Chapter 7 bankruptcy, your car cannot be repossessed due to the automatic stay, although the automatic stay can end as to your car a little earlier than the end of your bankruptcy case, under certain circumstances. If you need a car but you want to get a different car from the one you have now, you will need to wait until your bankruptcy is over before you can get a new car. Because you need a car, you may want to continue making your current car loan payments until you are certain that you can get another car.

Getting another car can be as simple as waiting until after the end of your Chapter 7 case. Or it can be as complicated as getting permission to get a new car loan during your Chapter 13 plan. Your exact strategy will depend on the specific issues in your case.

If You Don’t Need Another Car

Planning is a lot easier if you don’t need to get another car at all. In this case, you simply stop paying on the car loan. You should stop paying on the car loan once you have decided that you no longer need the car and once you have cleaned your personal belongings out of it.

You can stop paying on the car before your bankruptcy, during your bankruptcy, or after the bankruptcy. In each of those cases, your bankruptcy will take care of discharging the car loan, if you are filing a Chapter 7. If you are filing a Chapter 13, you may be repaying some or all of the car loan through your bankruptcy case, since Chapter 13 involves some level of repayment.

You Can Get A Car Loan After Bankruptcy

So many people believe that they “can’t buy anything,” or that they won’t be able to take out a new loan after bankruptcy. This isn’t true. First – of course you can buy things after bankruptcy. There’s nothing to stop you from saving up enough to pay cash for a used car after bankruptcy, except for your ability to earn enough cash to save up, which is a challenge for many.

Second, you can get a car loan after bankruptcy. Keep in mind that the loan terms won’t be the best terms – you did just come out of a bankruptcy, after all – but don’t be surprised if a car dealership is ready to throw a new car loan contract at you the same day that your bankruptcy case ends. Writing up new car loans is how car dealerships make their money.

If you’ve got questions about how to get rid of your car loan in bankruptcy, or if you need to use bankruptcy to get out of a bad car loan, call (201) 676-0722 to schedule a free telephone consultation with attorney Jennifer Weil, or go to my Setmore page.

How To Keep Your Car Through Bankruptcy

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This focus of this post is how to keep your car through your bankruptcy. It’s based on my experience as a bankruptcy lawyer, from what I’ve seen happen in my clients’ cases over time. I’ve helped many people successfully keep their financed or leased cars through bankruptcy and beyond. And I’ve seen what happens when people don’t take the steps required to keep their car through bankruptcy.

If you follow the right steps, then you will have the ability to keep your financed or leased car through bankruptcy and thereafter.

Truth is, if you are making all of your car payments in full and on time, you can keep your car through the bankruptcy.

But there’s a trick to it. If your lender has been lenient, letting you make payments late by telling you it’s OK with them, they will not be OK with late payments once your bankruptcy is filed. Lenders become more strict when their customer has filed for bankruptcy. They will want their full payments on time each month, even if before they’d said that late payments were OK.

What happens if your payments are not in full and/or on time every month? Can the lender repossess? Once you are out of bankruptcy, yes – the lender can repossess your car. If you’ve been chronically late with payments, or even if you were late only one month, and you didn’t get all caught up before filing bankruptcy, you’ll face having your car repossessed.

Remember, a car loan is a type of secured debt. This means that if you don’t make your car payments in full and on time, the lender can take the car back. The same is true of a leased car. In fact, repossession may be the lender’s only remedy after you have taken the car loan through the bankruptcy.

The first lesson here is that if you haven’t been strictly making your full car payment on time every month, now’s the time to catch up completely – before your bankruptcy case gets filed. If you don’t, you might be looking at repossession after the bankruptcy is over with.

A second lesson in all this is that if you are having trouble keeping up with your car payments, now is a good time to take a long, hard look at whether this particular car loan is a good idea for you to keep dealing with. Bankruptcy will provide an opportunity to discharge your car loan. If the payments are just too much, or if the car keeps having problems, bankruptcy can allow you to get rid of the car and its loan and, once your case is finished, to pick up a different car, if you need one.

How to keep your car through bankruptcy is not such a mystery. And it isn’t difficult, either. Successfully keeping your car through your bankruptcy case takes a little planning and attention to detail before you file the bankruptcy case.

Mapping out your bankruptcy before you file is arguably the most important part of filing for bankruptcy, because it is the best way to ensure that your bankruptcy case will go smoothly. Ideally, you should never be in a rush to file a bankruptcy case, because that’s when important details get lost, like catching up on your car payments so that you don’t face losing that car after your bankruptcy case is over.

Game plan your personal strategy to keep – or to get rid of – your car through your bankruptcy. Call (201) 676-0722 to schedule a phone appointment to discuss it with attorney Jennifer Weil.

How To Keep Your Car in a Chapter 7 Bankruptcy

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Chapter 7 bankruptcy gives you a couple of options for your car when you’re still paying on it. Basically, you can either keep paying or you can surrender (i.e., give back) the vehicle.

What’s The Situation?

This is about a vehicle that you still owe on, where your finance company is the lienholder on your vehicle title, and where there’s no more equity (value beyond the debt) than is covered by your available exemptions. In other words, this is not a vehicle that your Chapter 7 trustee is going to be interested in, either because it has no equity (e.g., it’s worth less than the debt against it) or because the equity is small enough to be protected by the exemption. The following options also apply to car leases.

Ch. 7 Options For Your Car

Even if the bankruptcy trustee doesn’t want your car, your car finance company might. But if you need to keep the car, especially for work, there is a certain path that you need to follow.

How To Keep Your Car in a Chapter 7 Bankruptcy

  1. First, if you don’t want to keep your vehicle, you can surrender it to the creditor after your bankruptcy is filed. (Or you can surrender it before you file, but that gets risky—be sure you have talked to your bankruptcy attorney and have a clear game plan beforehand.) If you give back your vehicle without bankruptcy, you’ll owe and you might be sued for the “deficiency balance”—the amount you would owe after your vehicle is sold, its sale price is credited to your account, and all the repo and other costs are added. (The deficiency balance you’ll owe can be crazy high.) But bankruptcy will write off (i.e., discharge) the deficiency balance.
  2. If you want to keep your car through a Ch. 7, you have to be current on your loan. In other words, make your car payments during bankruptcy. So if you aren’t current, you’ll need to quickly get current and stay there. Some lenders will allow you to be a month or so behind on your loan, but I’ve found that when a bankruptcy has been filed, they suddenly change their tune and they want to you be current on your payments. Depending on the lender, you might need to sign a reaffirmation agreeing to legally exclude the vehicle loan from the bankruptcy discharge, but most lenders don’t work that way. I generally don’t recommend a reaffirmation agreement except under certain narrow circumstances. You should discuss this issue with an experienced bankruptcy attorney before your bankruptcy is filed.

The Takeaway

In general, “straight bankruptcy”—Chapter 7—can be the best way to go if your vehicle situation is pretty straightforward: you either want to give back your car, or you want to keep the car and you’re current on the loan or can quickly get current.

If you have questions about how to keep your car in a Chapter 7 bankruptcy  – or about how to get rid of it – schedule an appointment with Bankruptcy Attorney Jennifer N. Weil, Esq. by calling 201-676-0722. Or you can schedule your own appointment online at my Setmore page.

 

Debts with Collateral–THE Fixation of Many Bankruptcies

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Your car loan, home mortgage, account at the appliance or electronics store, and maybe a debt that’s resulted in a judgment lien—these debts with collateral are the ones that grab the most attention during a bankruptcy case. And that includes the attention of the creditors, very interested in “their” collateral.

General unsecured debts are pleasantly boring in most bankruptcy cases. In a Chapter 7 case, they are generally discharged (legally written off) without any opposition by the creditors, who usually get nothing. And in a Chapter 13 case, general unsecured debts are often just paid whatever money is left over after the secured and priority debts, and the trustee and attorney fees, are paid. Nice and boring. That’s because the creditors don’t have much to fight about.

But with secured debts—debts with collateral—both sides have something to fight about: the collateral. The creditors know that the vehicle or house or other collateral is the only thing backing up the debt you owe to them, so they can get quite pushy about protecting that collateral.

There are a few basic points to remember that apply to just about all secured debts:

Two Deals in One

It helps to look at any secured debt as two interrelated agreements between you and the creditor. First, the creditor agreed to give you money or credit in return for your promise to repay it on certain terms. Second, you received rights to—and usually title in—the collateral, with you in return agreeing that the creditor can take that collateral if you don’t comply with your first agreement to repay the money.

Generally, bankruptcy will absolve you of that first agreement—your promise to pay—but the creditors’ rights to collateral survive bankruptcy (except in certain rare situations we will highlight later). Your ability to discharge the debt gives you some options, and can sometimes give you a certain amount of leverage. But the creditors’ rights to the collateral give them certain options and leverage, too. You’ll see how this tug-of-war plays out with vehicle and home loans, and few other important secured debts.

Value of Collateral

In that tug-of-war between your power to discharge the debt and a creditor’s rights to the collateral, how much the collateral is worth as compared to the amount of the debt becomes important. If the collateral is worth a lot more than the amount of the debt, the creditor is said to be well-secured. It has a better chance of having the debt paid in full. You’ll want to pay off the relatively small debt to get the relatively expensive collateral free and clear of that debt. Or, if you didn’t make the payments, the creditor will get the collateral and sell it for at least as much as the debt.

If the collateral is worth less than the amount of the debt, the creditor is said to be “undersecured”. It is less likely to have this debt paid in full. You might be less likely to pay a debt only to get collateral worth less than what you’re paying. And if you surrender the collateral the creditor will sell it for less than the debt amount.

Depreciation of Collateral, and Interest

With the value of the collateral being such an important consideration, the loss of value through depreciation is something that creditors care about, a concern which the bankruptcy court respects. Also, secured creditors are usually entitled to interest. So, you’ll see that in fights with secured creditors, this issue about the combined amount of monthly depreciation and interest often comes into play.

Insurance

Virtually every agreement with a secured creditor—certainly those involving vehicles and homes—requires that you carry insurance on the collateral. If the collateral is damaged or destroyed, this insurance usually pays the debt on the collateral before it pays you anything. And, if you fail to get the required insurance—or sometimes even if you simply don’t inform the creditor about having the insurance—the creditor itself is entitled to buy “force-placed” insurance to protect only its interest in the collateral, AND charge you the often outrageously high premium.

Options with Your Vehicle Loan under Chapter 7

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Your car loan may be your most important debt. Chapter 7 gives you the control you need to handle it.

When you think about secured debts—those tied to collateral like a vehicle—it helps to look at these kinds of debts as two deals in one. You made a commitment to repay the car loan and then you agreed to back up that commitment by giving the creditor certain rights to your collateral.

The first deal—to repay the money—can almost always be discharged (erased) in bankruptcy. But the second deal—the rights in the collateral that the creditor has, known as a “lien” on the vehicle title—is not affected by your bankruptcy. So, you can wipe out the debt, but the creditor stays on the title and can get your vehicle if you stop paying. Your options in Chapter 7, and the creditor’s options, are tied to these two realities.

Keep or Surrender?

As long as you file your Chapter 7 case before your vehicle gets repossessed, the ball is in your court regarding whether to keep or surrender it.

Surrender the Vehicle

In most situations, if you want to surrender the vehicle, then a Chapter 7 bankruptcy is the time to do it. That’s because in the vast majority of vehicle loans, you would still owe part of the debt after the surrender— the “deficiency balance”—often a shockingly large amount. The reason for the large deficiency balance is because you usually owe more than the vehicle is worth, but also because the contract lets the creditor charge you for its repossession and resale costs. Surrendering your vehicle during your Chapter 7 case allows you to discharge that whole debt and not owe your lender any of those costs.

There is a theoretical possibility that the vehicle loan creditor could challenge your discharge of the “deficiency balance,” based on fraud or misrepresentation when you entered into the loan. These are rare, especially with vehicle loans.

Keep It

Whether you are current on the loan payments does not matter if you are surrendering the vehicle. But if you want to keep it, whether you are current and if not, how far behind you are, makes a big difference.

Keep the Vehicle When Current

As you can guess, it’s best if you are current on your car payments. Then you would just keep making the payments on time and you might sign a “reaffirmation agreement” to exclude the vehicle loan from the discharge of debts at the end of your Chapter 7 case. But whether you would sign such an agreement depends heavily on the advice of your bankruptcy attorney, an issue you should discuss thoroughly with them.

Some vehicle loan creditors insist on a reaffirmation agreement, at the full balance of the loan—it’s a take-it-or-leave-it proposition. In that case, if you want to keep the car or truck, you need to “reaffirm” the original debt, even if by this time the debt is larger than the value of the vehicle. But reaffirmation can be dangerous because if you don’t keep up the payments, you could still end up with a repossession and a hefty debt owed—AFTER having passed up the opportunity to discharge the debt during your bankruptcy case. So be sure to understand this clearly before reaffirming, especially if the balance is already more than the vehicle is worth.

Some creditors are willing to allow you to reaffirm for less than the full balance, so that the creditor avoids taking an even bigger loss if you surrender the vehicle. Talk to your attorney whether this is a possibility in your situation.

Keep the Vehicle When Not Current

If you are not current on the vehicle loan at the time your Chapter 7 case is filed, most of the time you will have to get current quickly to be able to keep the vehicle—usually within a month or two. That’s in part because for a “reaffirmation agreement” to be enforceable, it must be filed at the bankruptcy court before the discharge order is entered. Since that happens usually about three months after the case is filed, the creditor needs to decide quickly whether you will be able to catch up on the payments and reaffirm the debt.

Some vehicle creditors may be more flexible, such as by giving you more time to cure the arrearage. Your attorney will be able to discuss this issue with your creditor, if it arises.

Don’t Give Up Your Vehicle Before Knowing Your Options

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Why not? Because you may be able to keep a vehicle you thought you couldn’t afford. Under certain conditions, a Chapter 13 bankruptcy might allow you to pay smaller monthly car loan payments. You may be able to pay off the debt and own the it free and clear for less than the loan balance.

It may very well be a good decision for you to give up an unaffordable car, but you should consider all of your options first.

If you need a car but cannot afford the monthly payments, you probably figure that you don’t have any choice but to lose it. You know the contract requires you to make the payments or else the vehicle gets repossessed. You may have been trying hard for months to keep or to get the payments current, putting up with late fees and constant notices or phone calls from the creditor threatening repossession. You would have already let the car go except you’ve got to have it for work and/or other family obligations, and you have no way to replace it. You feel stuck, with no good options.

On top of everything else, you might have heard that a bankruptcy can’t help much, at least for hanging onto the car—that you still have to either make the payments, and catch up if you’re behind, or else lose it.

That’s true, in a “straight bankruptcy,” a Chapter 7.

But it’s not necessarily true in a Chapter 13 case. If you meet two conditions, you may be able to do a “cramdown” on the vehicle loan: lower your payments and likely pay less overall on the loan. You may well also be able to lower your interest rate.

The two conditions to be able to do a “cramdown”:

1) Your vehicle loan was entered into more than 910 days before your Chapter 13 case is filed (that’s just about two and a half years before); and

2) At the time your case is filed, the value of your vehicle is less than the balance on your loan.

If your car loan meets these two conditions, your loan could be essentially re-written through a Chapter 13.  The total amount you must pay down could be reduced to the value of the car, which is known as a “cramdown”. That’s called the “secured portion” of the debt. Also, a new monthly payment is calculated—representing the amount needed to pay off the smaller balance, often at a lower interest rate, and often on a longer remaining term.

What happens to the “unsecured portion”—the part of the debt beyond the value of the vehicle? It gets lumped in with the rest of your unsecured debts, usually not requiring you to pay anything more to all your unsecured creditors regardless of your vehicle loan.

And what if you’re behind on your vehicle loan when you file your Chapter 13 case—when do you have to pay that arrearage? You don’t. It’s just part of the re-written, new “crammed down” obligation.

As you can see, you may not want to surrender a car or allow it to be repossessed if you could keep it while having it cost you much less to do so. Sometimes having a reliable vehicle is essential to achieving a successful re-start of your financial life.  Before you lose that essential part of your financial plan, carefully consider all of your options.

Photo by m.gifford.