The Operation of Chapter 7 Bankruptcy
This type of bankruptcy requires you to liquidate your assets, including your vehicles, and pay back your creditors with the proceeds. Therefore, if you have a home with equity, a functional business, or any other asset you'd like to retain, you should consider filing for a different type of bankruptcy. If you have few or no remaining assets and are unable to cover your regular living expenses, this type of bankruptcy may be appropriate for you.
Chapter 7 and Your Automobile
In most cases, Chapter 7 bankruptcy will result in the loss of your vehicle because it is considered an asset, but there are exceptions. If you no longer make payments on your car and its value is less than the exemption amount in your state, your car is not deemed an asset for liquidation purposes. If you are still making payments or if the value of your vehicle exceeds the exemption amount, the situation becomes more complicated.
If you are still making payments on your automobile, it is imperative that you never fall behind. By missing payments, the risk of losing the vehicle increases. However, completing your payments as usual may not be sufficient. You will be required to either redeem the vehicle at its current value or enter into a reaffirmation agreement with the lender.
This agreement allows you to retain your vehicle under terms similar to the original loan. By making timely car payments, you may rarely convince the lender to let you retain the vehicle without a reaffirmation agreement. This option is known as ""ride-through"" and should be discussed with your Chapter 7 bankruptcy attorney.
State Dispensations
The allowable value of your paid-for vehicle varies considerably from state to state. In Alaska, for instance, you can choose an exemption for up to $3,900 of a single vehicle if its total value does not exceed $26,000. In California, only vehicles worth less than $2,725 are exempt. In Colorado, your automobile is exempt from sales tax if you use it to commute to work and its value is less than $5,000. This value increases to $10,000 if you are a senior or disabled person. Due to the numerous variations in these laws, it is crucial to discuss your exemptions with a Chapter 7 bankruptcy attorney.
Recommitment Agreements
If you choose to utilize a reaffirmation agreement, you must negotiate with your lender. You or your Chapter 7 bankruptcy attorney must contact the lender and inquire about the loss mitigation department. If the lender informs you that a reaffirmation agreement is not necessary, keep in mind that they can repossess the vehicle if you default on your payments. If the lender requires a reaffirmation agreement, you should keep in mind that you may be able to negotiate terms that are even more favorable than your previous agreement simply by requesting them. All contracts must be evaluated by a judge prior to becoming legally binding.""
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