In 2011, over 21,000 people filed Chapter 7 bankruptcy in Texas, according to the American Bankruptcy Institute (ABI). Many people become concerned as to whether they will face car repossession should they file for bankruptcy, and this may be one of the first questions clients bring to their Plano bankruptcy lawyers.
Common Misconceptions about Filing Chapter 7 Bankruptcy
Most who file bankruptcy are simply seeking viable solutions to financial predicaments. Filing bankruptcy may prove to be a useful tool to allow some people to restart their lives.
If you considering filing for Chapter 7, there are some things you should know. Unfortunately, there are common misconceptions about filing Chapter 7 bankruptcy, one of which is that lienholders will repossess your car or your home. This isn’t necessarily true.
If you already own the car outright and are no longer making payments, you may be allowed to keep your vehicle provided it falls under the vehicle exemption rules. In Texas, there is no specified dollar limit to the exemption of vehicles – although there is a cumulative property value limit of $30,000 for individuals and $60,000 for a family. Texas Property Code §42.001(a)(2)
Specifically, Texas law states that a vehicle may be exempt “for each member of a family or single adult who holds a driver’s license or who does not hold a driver’s license but who relies on another person to operate the vehicle for the benefit of the nonlicensed person.” Texas Property Code §42.002(a)(9)
If you are still making payments on your car, you have the option of keeping it to avoid car repossession. If, however, you’d rather acquiesce the car and be free of its debt, that’s another option you may consider, that your Plano bankruptcy lawyer will be happy to discuss with you.
Weighing Options Regarding Car Repossession
Vehicle loans are generally considered secured debt. This means that should you default on your payments, the creditor has the legal right to repossess the property. If, however, you are current on your payments, you may have several options regarding your vehicle:
- reaffirming the debt to keep the car;
- redeeming the debt to keep the car;
- retain and pay (not an official option under Bankruptcy Code, but still an option); or
- surrendering the vehicle to be released of the debt.
Keeping Your Vehicle
If you are current on your payments and decide you’d like to keep your vehicle when your file for Chapter 7 bankruptcy, you may be able to avoid car repossession through redemption (you pay the lender a lump sum to purchase the car); or reaffirmation (you enter into a new contract with the lender and continue making payments). A third approach is that you continue to pay your car loan and you do not redeem or reaffirm the loan. Although this is not an official option under the bankruptcy code, it is often the best option and in most cases, the lender will not repossess your car as long as you are current on making your payments.
Surrendering Your Vehicle
Should you decide that you can’t (or don’t want to) keep your vehicle, you can surrender it during the bankruptcy process. You’ll have to indicate your intentions to the court and the car lender on a specific form (Statement of Intention). You can obtain this form from your Plano bankruptcy lawyer or download it online.
Keep in mind, though, that while surrendering your vehicle does have certain benefits, such as, you’ll be free of monthly payments you may not be able to afford. Another benefit would be if the car is worth far less that your loan balance.
There can be drawbacks to surrendering your vehicle, too. If you surrender your vehicle, it may be difficult to obtain a car loan after bankruptcy. You may wind up having to get a loan with a high interest rate, and you may be forced to use subprime lenders. That’s why it is crucial to speak with a Plano bankruptcy lawyer to go over all your possible options and decide what the best choices are for you.
Getting Chapter 7 Bankruptcy Help from a Plano Bankruptcy Lawyer
Filing for bankruptcy can be a daunting process, and you may find yourself fraught with many questions. For help with the filing process, and to get tailored legal assistance in dealing with your car repossession concerns, consider contacting our legal firm, Warren & Migliaccio, L.L.P. Contact us to go over your Chapter 7 bankruptcy options by phone – 888-584-9614 – or you can first check out our free Texas bankruptcy guide.