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Car loans and leases in Bankruptcy

What if you don’t want to include your car in bankruptcy?

A lot of times I hear from clients, "I am not including my car in bankruptcy! I need the car."

There is a lot of misunderstanding, confusion, emotion.

Don't worry. Let's take it one step at a time.

First of all, what does it mean to include or not include something in bankruptcy? And is there a choice in terms of what can be "included"?

When you file either Chapter 7 or Chapter 13 case, you have an obligation to disclose all of your assets (cars, real estate, bank accounts, etc.). If something is in your name, even if somebody else is using it, you have to disclose it and list it on your petition. You also have an obligation to list all of your creditors, car lenders including. The court wants to have a complete picture of your financial situation.

However, just because an asset is listed in the petition, does not mean that the court or the lender will take it away. Usually, that's not the case.

The court and the trustee will not take the car because you are can usually exempt it. Keep in mind that if the car is not completely paid off yet, the court does not take consider full value of the car to be your asset. Only your equity in the car is an asset. If any equity is nevertheless not exempt, you may be able to buy out the car from the trustee in Chapter 7, or (a safer route) file Chapter 13 and pay whatever is non-exempt to creditors over a period of three to five years. This usually translates into a low monthly payment.

The lender will not take the car away as long as the lender is getting paid for the car. In Chapter 7, you continue making the payments directly to the lender as before. In Chapter 13, you usually repay the car loan through the Chapter 13 plan. An added advantage for many people is that the car loan can be repaid through this plan at low interest.

Sometimes in a Chapter 7 the judge expresses concern about your ability to afford the car loan payments, or may object if you are paying for more than one car.   Your attorney will be able to guide you in this situation.

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