Bankruptcy exemptions are applicable depending on the equity you have in the property. In case of an automobile, if it has enough equity, you can retain the car. If the equity in your car is more than the exemption, it can be sold so that you can repay your debts. It is also important that you be current with the payment of your car loans.
Debtors can also elect bankruptcy code exemptions in some of the states. In these states, debtors have the opportunity to choose between state exemptions and federal exemptions. However, the bankruptcy exemption laws differ from one state to another. Another important aspect of auto exemption is whether your car has a clear title or not.
In the event your car has been used as collateral, or you are leasing it or financing it, there are 3 options with regard to secured car loans when Chapter 7 bankruptcy is filed by you.
What happens to your car loan in Chapter 7 bankruptcy?
If you file for Chapter 7 bankruptcy, you can reaffirm, redeem or surrender.
A reaffirmation agreement is signed between you and your car creditor. In this you continue making payments and the creditor assures you that as long as you are paying, your car will not be taken away.
You can surrender your automobile to the lender if you cannot afford to make monthly payments towards car loan.
You can redeem or buy the car from the creditor by paying him the fair market value. You are required to pay the replacement retail price of the vehicle as per 2005 bankruptcy code.
Effect of Chapter 7 bankruptcy on Car leases
If you have leased your car, you have 2 options. You can either surrender the car or continue to make lease payments every month. In case you surrender the vehicle, obligations under lease get eliminated.
Effect of Chapter 13 bankruptcy on Car leases
In Chapter 13 bankruptcy you either assume or reject the lease. If you “assume” the lease, you have to make payments every month. If you “reject” the lease, you have to return the vehicle to the lender.
What happens to your car loans in Chapter 13 bankruptcy?
In case you have defaulted in making your car payments, you can declare Chapter 13 bankruptcy to stop repossession of the vehicle. You make payments depending on the time of your purchase. Whether it has been recently bought or bought several years back.
In case you bought your car after 910 days elapsed from the time you filed for bankruptcy, you are required to pay as per the current value of the vehicle.
In case you have bought the car within 910 days from the time you declared bankruptcy, you are required to pay back the entire loan. However, the interest rate it attracts gets reduced to a great extent.
Effect of bankruptcy on Car insurance
Filing for bankruptcy does not prevent you from getting your car insured. The car insurance rates may go up to some extent. If you have been making regular insurance payments, it is less likely that your insurance rate will escalate. If you have a lower credit rating your rate may increase.
Filing for bankruptcy hurts your credit score and remains in the credit report for a period of 10 years. There are many car insurance companies who use credit score as a means of evaluating your creditworthiness. The car insurance company may offer you an insurance policy but may not offer you the best rates.