Saturday, May 14, 2011

Can I keep my car if I file for bankruptcy?

What you can keep in a bankruptcy case depends on what Chapter you file and where you live.

In most instances, bankruptcy allows you to keep one vehicle, and possible a second.

Normally, in a Chapter 7 case, you can keep whatever you can exempt under the allowed "exemptions". 
An "exemption"  is something that you may keep, regardless as to how much money you owe to creditors other than the car loan.
There is a State Exemption scheme in many states and there is a Federal Bankruptcy Code exemption scheme. 

If you live in New Hampshire, where I practice, you can choose either (1) the State Exemptions or the (2) Federal Exemptions. 

Under the New Hampshire State Exemptions, as well as under the Federal Bankruptcy Code exemptions, you can normally exempt one car (up to a certain amount in value) - and there is a "wild card" exemption to cover possibly a second vehicle.  Please click onto my articles on "Exemptions - NH State Election" and "Exemptions - Federal Election" for more information.

In Chapter 13, you would still choose either the State or Federal Exemption scheme. However, as long as you make the Chapter 13 payments under your Chapter 13 re-payment plan, you can normally keep ALL of your assets. 

The reason you list the exemptions in Chapter 13 is to determine how much equity you have in your assets after application of exemptions.  Why? Because, in Chapter 13, under your repayment plan you should pay your unsecured creditors (normally credit card debt or medical bills) the same percentage they would receive if you liquidated all of your assets after application of the exemptions - essentially, pennies on the dollar spread over the life of your Chapter 13 re-payment plan.

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