What Happens To Your Car In Chapter 7 Bankruptcy?

How Can Chapter 7 Bankruptcy Affect Your Car: Exemptions, Equity & Options To Keep It

When filing for Chapter 7 bankruptcy, the fate of your car depends on things like exemptions, equity, and also your options for retention. While it’s true that non-exempt assets may be liquidated to satisfy creditors, in many states, including Hawaii, you can receive exemptions that protect essential assets like your car. If your car’s equity remains within these exemption limits, you will likely be able to keep it.

But remember that the trustee may sell your car to settle your debts if it exceeds the exemption, making this approach a bit tricky to follow. That’s why we bring you this guide that will help you better understand your specific situation and detail the steps you can take to protect your vehicle.

Options For Keeping Your Car When Filing For Chapter 7 Bankruptcy

Many people do not fully own their vehicle, but still have a loan when they are filing for bankruptcy. This can cause some additional concern as to what will happen to your much-needed vehicle. The good news is, there are several options that can help you:

• Reaffirm the Loan: Sign a reaffirmation agreement with the lender telling them you plan to continue payments through bankruptcy without having the loan discharged. You must be current on the loan in order to do this. This option will keep your car out of the bankruptcy process altogether.
• Redeem the Vehicle: If your loan balance is much higher than the car’s value, you could opt to pay off the car’s current market value in one lump sum. This will wipe out the rest of your loan allowing you to keep the vehicle.
• Ride-Through: Continue making payments on your car, staying current with your loan through bankruptcy. You will not reaffirm your loan, just continue with payments. The risk is that there is no legal guarantee that the lender will not repossess your vehicle.
• Protect Equity with Exemptions: As stated above, you can talk with a bankruptcy lawyer about claiming the Hawaii or Federal exemption which will allow you to keep a certain amount of equity. If your car equity is fully exempt, it will not be sold by the trustee.
• Combination of the Options: You can combine some options for the best possible outcome. For instance, you could reaffirm your loan and claim an exemption to protect the equity. Or you could choose to ride-through the bankruptcy while paying your loan and opt for the Federal wildcard exemption. These combinations and more are possible.
• Surrender the Vehicle: If you are trying to keep your vehicle, surrendering it is less than ideal. However, in some circumstances, this is your best option if you still have a loan. Surrendering means you will give your car back to the lender. Your debt is discharged under Chapter 7 bankruptcy and you will no longer be responsible for it.

What Is Chapter 7 Bankruptcy & How Your Car Ownership Is Impacted

Chapter 7 bankruptcy is also known as liquidation bankruptcy. Once you file, your bankruptcy trustee will start selling all of your non-exempt assets. The money from these assets will be used to pay off your debts and any remaining debts will be discharged.

Living in Hawaii, you can choose to use either the Hawaii exemptions or the Federal exemptions if you have lived in Hawaii for 2 years or more. There are several bankruptcy exemptions used in these systems that protect certain assets including:

• Homestead
• Vehicle
• Personal Property
• Retirement and Pensions
• Insurance and Benefits
• Tools of the Trade
• Wildcard

Hawaii vs Federal Exemption Limits For Car Equity In Chapter 7 Bankruptcy

If you live in Hawaii for 2 years or more, you can opt for either the state or the Federal exemptions. The amounts for each exemption vary with Hawaii providing higher amounts in some areas and the United States providing higher amounts in others. When it comes to a vehicle, the exemption amounts are as follows:

• Hawaii: Up to $2,575 in equity on your vehicle
• Federal: Up to $4,450 in equity on your vehicle

You can only choose the exemptions of Hawaii or the Federal ones, not both. To determine which exemptions would benefit you the most, you should reach out to a Hawaii bankruptcy lawyer. When it comes to your car, you will also have to know how much equity you have in it.

How To Determine Your Car’s Equity When Filing For Chapter 7 Bankruptcy In Hawaii

Figuring out your car equity is an important step in deciding whether or not it falls under exemptions and cannot be seized to pay your debts in Chapter 7 bankruptcy. The first step in determining equity is to determine your car’s market value. Look at websites like Kelley Blue Book and use the “private party” value, not the trade-in value. Once you have your current market value, subtract any loan balance you have on the car. The outcome of this is your equity.

For instance, let’s say your car’s market value is $8,000. You still owe $6,000 on your car. Your equity is $2,000. When you’re filing for bankruptcy and need to keep your car, you should apply prepared with a printout of your car’s valuation and loan payoff statement, if applicable. Your lawyer will help you claim the necessary exemptions.

It’s important to note that this process only applies to one car per spouse if filing jointly and per individual if filing individually. However, if you use the Federal exemptions, you could possibly use the “wildcard” exemption to protect another vehicle. The nuances of this situation are tricky and you should consult with a bankruptcy lawyer.

Keep Your Vehicle Safely In Your Possession by Hiring a Trustworthy Hawaii Bankruptcy Lawyer

Make sure to keep your car during the Chapter 7 bankruptcy process by consulting with our Honolulu bankruptcy lawyers at Blake Goodman. We will walk you through the process and determine the best steps for your particular situation. We have years of experience and a track record of success giving our clients the confidence they need to hire us in this difficult time.

Reach out to our law firm today for a consultation and benefit from our affordable top-notch services.