Can I Keep My Car if I File Chapter 7 in Texas?
Yes, at least most of the time in Texas you'll be able to keep your car if you file Chapter 7 bankruptcy because we have a high exemption amount for personal property (cars are considered personal property in Texas bankruptcies).
You have several options for what to do with your car when you file Chapter 7, and one of your options is to exempt any equity you have in your vehicle to protect it against being taken by the bankruptcy trustee. The rest of this blog discusses all of the options available to you for your car when filing Chapter 7.
Can I Keep My Car if I File Chapter 13 in Texas?
Yes, the only way you lose a car in Chapter 13 bankruptcy is by voluntarily giving it up or deciding that you can't "pay" for it (which would still lead to you voluntarily giving it up).
Chapter 13 is actually a great resource for folks who are behind on their car payments and want to avoid repossession or want to get their car back soon after it was repossessed. Many folks get rid of negative equity in their vehicle by filing Chapter 13 bankruptcy, as this is just one of the benefits of this type of bankruptcy. More details on the options available to you for your car when filing Chapter 13 are discussed below.
What Options do You Have for Your Car in Bankruptcy: Chapter 7 vs. Chapter 13
Here's a quick outline of the options for your car that exist in Chapter 7 and Chapter 13 bankruptcy. Each of these options are discussed in further detail throughout this blog. It's important to seek legal advice from a bankruptcy attorney to know the best way forward for you.
Chapter 7 | Chapter 13 | |
Can You Keep Your Car | Yes - 1 vehicle per licensed driver in the household, up to $50,000 property exemption for individual filer & $100,000 for joint filers | Yes - 1 vehicle per licensed driver in the household. Must "pay" for additional cars. |
Do You Have to Be Current on Your Payment When You File | Yes, otherwise your vehicle will be repossessed | No, one of the benefits of Chapter 13 is that you can catch up on payments for secured property like your vehicles |
Can You Get Rid of Negative Equity | Yes, you can redeem your vehicle for the fair market value | Yes, as long as you purchased your vehicle 910 days ago you can convert your negative equity into unsecured debt |
Can You Surrender Your Vehicle | Yes | Yes |
How Long Do You Have to Wait to Buy a Car | You Don't have to wait, we regularly have client's buy cars within weeks of filing | You can purchase a car during your bankruptcy, with permission from the bankruptcy court. |
What Happens to Your Car When You File Bankruptcy?
This is one of the most common questions we hear from folks, and the answer is that you have options. Most of the time in Texas you can keep your car if that's what you want to do. There are also options for getting rid of negative equity in Chapter 7 and Chapter 13, but sometimes these options aren't always available. It depends on your specific situation. You can also choose to surrender your car when you file bankruptcy, which actually happens more than you might think because bankruptcy is a really good time to get out of a bad car deal without incurring additional debt or repossession.
Texas Bankruptcy Exemptions - Motor Vehicle Exemption
Texas is the envy of many other states when it comes to our bankruptcy exemptions. Although our state exemptions aren't great at protecting money-there's no wildcard exemption in Texas-they are pretty fantastic for protecting property. Most people are familiar with our unlimited homestead exemption, but most people don't know that our vehicle exemption is in effect nearly unlimited.
The Texas motor vehicle exemption allows you to exempt up to one vehicle per licensed driver in your home, and while there is a monetary exemption limit to consider it almost never comes into play.  That's because your vehicle is considered personal property and the Texas bankruptcy exemptions allow you to exempt up to $50,000 of personal property if your an individual filer and up to $100,000 of personal property if you're filing bankruptcy jointly.
And remember, when we're calculating what we need to exempt we only look at how much equity you have in your vehicle, not the actual value of the vehicle. For example, if you have a vehicle with a value of $48,000 and you still owe $45,000 on it, then we only need to exempt $3,000 because that's all of the vehicle equity that you actually have.
What is a Reaffirmation Agreement?
A reaffirmation agreement is a new agreement between you and your auto lender that you sign after filing bankruptcy. The agreement reestablishes your legal obligation to pay the balance you owe for the vehicle since the bankruptcy technically discharges your obligation to repay that debt. Sometimes there may be some wiggle room to renegotiate the terms for repayment, but most of the time these agreements are nearly identical to the terms of the car loan in place when you file bankruptcy.
What is Retain and Pay?
This is a strategy for keeping your vehicle without signing a reaffirmation agreement. It's not available in every jurisdiction and there are certain lenders known for not allowing debtors to use this strategy. Even if you're in a jurisdiction that permits this strategy and your lender is known for allowing debtors to "retain and pay," there's still always a small amount of risk involved in choosing this option. That said, you should definitely talk to a knowledgeable local bankruptcy lawyer about this strategy to see if it's available to you when you file bankruptcy.
Here are two important things to note about the specifics of choosing this option.
First, you're going to loose your online account access. Most auto lenders consider your online account a "privilege" and will dangle it over your head like a carrot to encourage you to sign the reaffirmation agreement. All this really means is that you're going to have to make your payments over the phone from now on.
Second, the lender will release their lien after you fully pay off the vehicle according to the loan that was in place when you filed bankruptcy. This is a frequent concern that a lot of folks share when considering this option, but rest assured that you will have the title to your vehicle free and clear after you pay it off.
Can I Get Rid of Negative Equity in Bankruptcy?
Yes, at least some of the time you can get rid of negative equity in your car by filing Chapter 7 or Chapter 13 bankruptcy. However, the process for getting rid of negative equity is different depending on the type of bankruptcy you file and not everyone will qualify to get rid of negative equity.
Chapter 7 Bankruptcy - Redeeming Your Car
One of the options available when filing Chapter 7 bankruptcy is to redeem your car, or in other words purchase your car free and clear from the lender for the fair market value or actual cash value of your vehicle at the time of filing. This forces the lender to eat the negative equity and allows you obtain a clear title for the fair market value of your vehicle and not a penny more.
Of course, you're probably yelling at me through your screen right now because who files for bankruptcy and has the cash lying around to purchase their vehicle outright?! I get it, but that's where it benefits you to talk to our Austin bankruptcy lawyer because there are options available that can assist you in redeeming your vehicle and getting rid of that negative equity.
Chapter 13 Bankruptcy - "Cramdown" the Negative Equity
Chapter 13 bankruptcy has a lot of benefits included to assist with restructuring debt, and the "cramdown" is one of those benefits. What happens in a cramdown is that the loan balance at the time of filing is divided into a secured debt and an unsecured debt. The secured debt is equal to the fair market value of your car at the time of filing, and the unsecured debt is the difference between the fair market value and what was owed at the time of filing. For example, if your car's value is $15,000 and you owe $20,000 at the time of filing, then after cramming down this auto loan you'll be left with a $15,000 debt that's secured by your vehicle and the remaining amount of $5,000 will be an unsecured debt. The unsecured debt may or may not get paid back in full or not at all depending on your Chapter 13 repayment plan.
When to Consider Surrendering Your Car
Although most people want to make sure can keep their car when filing bankruptcy, some folks recognize that getting rid of their car during bankruptcy may be a good idea. Then there are also those folks who begin the bankruptcy process wishing to keep their car and later decide that surrendering their vehicle is a better option than keeping it.
Remember, the idea behind bankruptcy is ultimately to save you money and make things easier for you to plan and prepare for a stronger financial future, and sometimes getting rid of your car during bankruptcy can help put you in a better position to make this happen.
Too Much Negative Equity
Maybe you have too much negative equity and you can't afford to redeem your car or you just don't want to bother with it. In a situation where you have a lot of negative equity, let's say $8,000 to $10,000 or more, you can see how just getting rid of the car may make sense. (See the section below on buying a car after bankruptcy if you're wondering about having a car to drive)
You Have Lemon / The Car Has Problems
A lot of times we hear folks tell us how much they need to keep their car, only to later learn that their car is always having issues. If your car is having issues then you may want to consider getting rid of it during bankruptcy.
When Can I Buy a Car After Bankruptcy?
You don't have to wait to buy a car after filing Chapter 7 bankruptcy, and if you filed a Chapter 13 bankruptcy then the only thing you'll have to wait for is the bankruptcy court to sign an order allowing you to purchase another car. In fact, you're probably going to begin receiving offers in the mail shortly after filing bankruptcy. Many car dealers will actually be eager to sell you a car because they know (1) you have more money now that you've had some debt discharged and (2) you can't file bankruptcy again for several years.
Talks to an Austin Bankruptcy Lawyer
Most folks just want to know if they can keep their car, but there are actually several options available for what you can do with your car when you file bankruptcy. It's important to understand all of your options because the idea behind a bankruptcy filing is to put yourself in the best position to move forward, and it's possible that something other than simply keeping your car is the best option for you. Working with our Austin bankruptcy lawyer will help ensure that you're up to speed on all of the options available to you and that you're able to make the best decision for you based on the facts of your case. When you work with an Austin bankruptcy lawyer, you'll have a confidential relationship so you can feel comfortable sharing specific information about your finances without worrying or feeling ashamed, you your bankruptcy lawyer can help you avoid any bankruptcy issues so that you're on better terms with a fresh start after your debt is discharged. If you're in Central Texas and considering filing bankruptcy, reach out to our Austin bankruptcy lawyer today by calling or clicking here to book your free consultation online.
Comments