People always wonder if they can keep their cars if they file for bankruptcy. In most cases, the answer is YES, you will be able to keep your car as long as you are current on your payments. Only in a very few cases does a bankruptcy debtor have any issues with keeping their car even if they are current with the payments. This happens when there is too much equity in the car or if the debtor does not sign a reaffirmation agreement.
Too Much Equity
If there is too much equity in the car then it is possible that the bankruptcy trustee will sell your vehicle. Equity is determined by the current value of the car minus the amount still owed to the financing company. So if you are able to sell your vehicle for $5,000 and you owe the finance company $2,000 then you have an equity amount of $3,000.
How much equity is too much? Every State allows a different amount allowed to be protected. Currently, in California a debtor can protect up to $5,850 with just using the allowed “Vehicle Exemptions.” In addition, if the debtor does not own any real estate with equity, then the debtor can use an additional $29,275 in what is termed the “Wildcard Exemptions” to protect any surplus equity that cannot be protected by just using the Vehicle Exemption. Thus, in most cases the debtors do not have issues with keeping their vehicle because there usually isn’t too much equity.
Reaffirmation Agreement
Once you file a bankruptcy, the finance company will be required by law to stop sending statements and they must cancel any automatic payments you have set up with them. However, you are still obligated to make timely monthly payments in the correct amount if you want to keep your car.
After you file the bankruptcy the vehicle finance company will send you a Reaffirmation Agreement which reaffirms the previous agreement you had with that specific creditor. The reaffirmation agreement basically means that you are agreeing that the bankruptcy does not affect your contract with that specific creditor. The risk of not signing the reaffirmation agreement is that a creditor still has the legal right to repossess a vehicle regardless if payments are made timely. Although most car finance companies do not repossess the car even if you do not sign the Reaffirmation Agreement and make timely payments. there is always a small risk that they can if you do not sign the Reaffirmation Agreement.
So if you need to discharge your debts and keep your car, or even to stop a repossession in its tracks, filing a bankruptcy can work for you. Please speak to a qualified attorney before making any decisions to file for a bankruptcy. If you would like to see if you qualify, call Reganyan Law Firm (818)649-0879 for a free 15-minute phone consultation.