What Happens to my car in Bankruptcy?
Simply put,
- if a car is worth more than $3000 and there isn’t a loan against the vehicle, the chapter 7 bankruptcy trustee could sell thecar. Here in the 10th circuit, we use the “replacement value” which is generally determined by going to NADA.com. A personal would generally get a check back for $3000 however, after the car is sold (this is the exemption amount).
- If the car has a loan, and the equity in the vehicle is more than $3000, paragraph 1 still applies. If there is less than $3000 equity in the vehicle, the options are to return the vehicle or reaffirm (contract to keep the debt) and continue to pay.
- A person, under limited circumstances can also do what is called a sec 722 redemption on a car with a loan in bankruptcy. This allows a person to pay only the NADA value of the car, not what is owed. Example: car is worth $5000 and has a $10,000 loan. Person can pay only $5000 and the other $5000 gets bankrupted.
- In chapter 13 there are several options. Generally, by filing chapter 13 and by making your car payment through the chapter 13 trustee instead of straight to the bank a person can lower there interest rate to around 5% and generally lower the payments by stretching the loan out to a ma x of 5 years.
- Also, in chapter 13 if the person has had the loan for more than 910 days before filing bankruptcy, the person only pays the value of the vehicle, like under paragraph 3 and the rest is bankrupted.