Most people in Indianapolis find having a car to be indispensable in their daily life, especially to get to work to support their families. Given the importance driving has in our society, if you are facing Chapter 7 bankruptcy, one of your major concerns might be whether you can keep your car.
Equity and exemptions
Much of the answer to this question lies in your vehicle’s equity and whether it is protected by any bankruptcy exemptions.
To figure out how much equity you have in your vehicle, take your car’s Blue Book value, and subtract how much you still owe on your car loan from that number. This is the equity you have in your vehicle.
Second, you will want to take this knowledge and see if you are protected by any bankruptcy exemptions. Bankruptcy exemptions are laws that state what assets you can keep, even if you file for Chapter 7 bankruptcy. You will likely lose your non-exempt assets in a Chapter 7 bankruptcy, as they are generally sold to pay back your creditors.
Indiana does not have a specific automobile exemption. However, it does have a wildcard exemption that can be applied to automobiles. The wildcard exemption covers up to $8,000 in equity in tangible property, including an automobile.
Putting it into practice
By knowing the equity in your vehicle and applicable exemptions, you can get a general idea of whether you can keep your car if you file for Chapter 7 bankruptcy.
If you own your car outright or are up to date on payments and the equity in your vehicle is $8,000 or less, you might keep it if you file for bankruptcy although this is not a guarantee.
If the equity in your vehicle is greater than $8,000, it might not be protected by the wildcard exemption and your vehicle will be sold, although you might be refunded the exemption amount and then use this money to purchase a new vehicle post-bankruptcy.
If you have negative equity in your vehicle, you likely will not be able to keep it if you file for Chapter 7 bankruptcy, although there are always exceptions.
If you are genuinely concerned that you might lose your car if you file for Chapter 7 bankruptcy, you might consider Chapter 13 bankruptcy or see if you can sign a reaffirmation agreement.
If you qualify for Chapter 13 bankruptcy, you keep your assets, including your car. The caveat is that you will be making regular payments for three to five years to pay back your creditors if you file for Chapter 13 bankruptcy.
If you file a reaffirmation agreement, then you will pay back some or all of what you still owe on your care loan, and your car will not be sold in the Chapter 7 bankruptcy process even if you have negative equity in it. You only have a certain amount of time to file a reaffirmation agreement, and it must be approved by your lender and the court.
Hopefully, with this information, your fears are somewhat assuaged. In the end, many people can keep their cars if they file for Chapter 7 or Chapter 13 bankruptcy or if they are approved for a reaffirmation agreement.