I have been asked many times the same question as to what happens to the car in chapter 7 bankruptcy.
In Nevada, the exemption in the equity of car is $15,000 per person. If you have an equity which is equivalent to $15,000.00, you car is saved under Nevada’s exemption ($30,000 combined for both spouses). Now, the equity means what you owes, and what is your net value after paying all the liabilities to your lender. The market value of the car is not an equity. Car is an essential tool for making livelihood and our economic lives depends upon this exemption. For many people considering filing for bankruptcy, it’s important to know whether they’ll be able to get on with their lives afterward—and for many, that will be determined by whether they have a car.
And, while car issues are predominant in our minds because car/autos have a nuclear role just like homes in our private lives. Here’s a little crash course on what you can expect to happen to your car/auto if you file for bankruptcy.
Chapter 7 & Chapter 13 Bankruptcy
Whether you file under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code, an automatic stay triggers to stop everyone asking you money, the collections calls and all kinds of payment. This stay covers debt collection, wage garnishment, lawsuits related to your finances, foreclosure and repossession. The automatic stay remains effective until the court discharges your case or one month if you are a repetitive filer.
Cars in Chapter 7 Bankruptcy
Chapter 7 bankruptcy offers filers a complete discharge of many unsecured debts. Your car loan, though, is a secured debt (it’s attached to property—your car). If you file a Chapter 7 case, you’ll have three options for your car loan:
• Redeem: This option involves one lump sum payment to your creditor for the car’s current fair market value. If you can afford to do this, it may make life easier in the future, since you’ll have eliminated car payments. But because most people file for bankruptcy at a time when cash is not handy, it may not be a viable option for many filers.
• Reaffirm: This option allows you to essentially continue making payments on your lease or loan as you did before you filed for bankruptcy. In reaffirming your debt, you agree a second time to continue making payments according to a schedule agreed upon by both you and your creditor.
• Surrender: If neither continuing payments nor redeeming the car will work for you financially (for example, if you owe more on the car than it’s currently worth), you can also choose to surrender your vehicle to your creditor and have the remainder of your debt discharged.
Cars in Chapter 13 Bankruptcy
If you file under Chapter 13 bankruptcy, your car’s future will depend on when you bought it.
• Newer cars: If you bought your car within 910 days of your bankruptcy filing, you’re required to pay the full value of the car loan, though your interest rate may be reduced. Please read our other articles of reaffirmation on cars as collateral.