Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, also known as """"liquidation"""" bankruptcy, certain exempt property, including motor vehicles, may be retained. Your ability to retain your car is contingent on a number of factors. You must let the bankruptcy court know what you intend to do with your vehicle by filing an official form known as the Statement of Intention (SOI) and sending a distinct copy of the SOI to your vehicle lender.
After filing for Chapter 7 bankruptcy, you have two options for keeping your vehicle: redemption and reaffirmation. You may also choose to abandon the vehicle, which will release you from further responsibility for the debt following your bankruptcy.
Redemption
Redemptions enable you to purchase a vehicle from the bankruptcy estate at its current market value. You can accomplish this by paying the lender the car's replacement value in one flat sum. A debtor may redeem a car note, for instance, by paying the lender the amount a retail vendor would charge for the vehicle, taking into account its age and condition.
Reaffirmation
A reaffirmation is an agreement you make with a lender after declaring bankruptcy in which you agree to remove the debt from bankruptcy protection and continue making payments according to the terms of your loan. Reaffirmations are optional, must be in writing, and must be approved by the bankruptcy court in order to be valid. For instance, you may make a reaffirmation agreement with the holder of a car note that allows you to retain the vehicle but requires you to continue making payments after bankruptcy.
Exemption
If you are not making payments on a car, you will be able to retain it if its value is less than the vehicle exception amount in your state. California has a $2,300 exemption amount. This means that if the equity in your vehicle is less than $2,300, you are allowed to retain it. Equity is calculated by deducting the amount still owed on the loan from the car's current market value. If the equity in your vehicle exceeds the exemption amount, you have two options to prevent the lender from repossessing it.
If none of these alternatives are viable for you, you can eliminate your auto debt by simply returning the keys to the creditor.
Automobile Leasing in Chapter 7 Bankruptcy
If you are leasing your vehicle at the time you file for Chapter 7 bankruptcy, you have the option of continuing to make the monthly lease payments and keeping the vehicle, or returning it to the creditor. If you return the leased vehicle, you are released from all lease obligations.
This process can be perplexing and is significantly more detailed than can be covered in this article. When filing for bankruptcy, you should consult a licensed bankruptcy attorney to determine the best course of action regarding your vehicle.
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