Ohio Attorneys Helping You Keep Your Car
A lien on your car title can survive bankruptcy just like a mortgage on real property; meaning the personal obligation can be discharged, but in this case, not the creditor’s lien on the vehicle.
If suitable arrangements are not made, the creditor may be entitled to repossess their collateral post bankruptcy when you are behind on payments.
The bankruptcy lawyers at Debra Booher & Associates have handled more than 15,000 bankruptcies for our Ohio clients. Let us lend you a helping hand as well. Contact our bankruptcy law firm today to schedule your free debt relief consultation.
Can I Keep My Car If I File Bankruptcy?
Rather than juggle finances, a debtor has several options under the Bankruptcy Code for keeping a car through bankruptcy or other personal property with secured creditors:
- Reaffirmation: This is an agreement between debtor and creditor that allows the debt to survive as if bankruptcy never took place. If you later default, the creditor’s rights after bankruptcy are the same as before bankruptcy. The debt can be collected via lawsuit, garnishment or other means. You should think carefully about reaffirming a debt. Most debts are reaffirmed according to the original terms of the agreement, although it is possible to negotiate modifications in some circumstances.
- Redemption: This means you pay the secured creditor only the value of the asset, rather than the balance owed; but this must be done in a lump-sum payment. Redemption is not available for all types of property, but it is often used with respect to cars or other personal property. The problem is that a debtor must get a lump sum of cash to redeem the asset. While some people can borrow from family or from exempt assets, not everyone has that option. There is now at least one company that will loan individuals money to help them redeem their cars; most people qualify.
- Surrender: If you surrender the collateral, the creditor sells the asset and applies it to the debt you owe. The balance remaining after the asset is sold, called the “deficiency,” is now an unsecured debt and is discharged.
- Do nothing: Simply continue payments, but be careful! This option for keeping a car through bankruptcy is not written anywhere in the Bankruptcy Code. Courts disagree on whether a creditor can repossess collateral post bankruptcy if the payments are current, but no reaffirmation agreement was signed. In Ohio, a creditor usually can repossess a car if no reaffirmation was signed even if the payments are current. Most creditors realize this is foolish to do.
For example, consider a car with a loan balance of $10,000 and a value of only $6,000. Because of the negative equity, it is usually unwise to reaffirm such a debt, because if you default, you will be left with a large balance. Yet, suppose you want to keep the car and cannot afford redemption. If you maintain your car payments and insurance, the creditor would be foolish to repossess, because at auction, they would be lucky to get $4,000-$5,000 toward the loan. Whereas, if the creditor doesn’t repossess, you are very likely to continue all your payments. But you can only use this option if you could live with the car being repossessed after discharge.
Other types of property, such as household goods, are never pursued by the creditor simply because it is not cost-effective. For example, suppose you do nothing with respect to a loan secured by a computer. The computer may only have a resale value of $200 at best. It is not likely worth the creditor’s time or money to repossess even though they are entitled to do so. Creditors must be very careful not to run afoul of the bankruptcy laws even in collecting their collateral, so it may not be worth the risk to them.
Get In Touch With Our Trained And Experienced Attorneys
If you have further questions about maintaining possession of your vehicle during bankruptcy, contact Debra Booher & Associates today. We are considered one of the leading consumer bankruptcy law firms in northeastern Ohio with more than 15,000 bankruptcy cases under our belt.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.