How to Keep Your Car in Chapter 7 Bankruptcy

Hello everybody, I’m Attorney Carmen Dellutri with Dellutri Law Group, and I want to talk to you today about how to keep your car–if that’s what you want to do–in Chapter 7. You have the right to keep your vehicle in Chapter 7.

Now let’s talk generically at first. Most people have a car payment. So when you’re thinking about filing bankruptcy, the first question I’m going to ask you is: Do you have a lender on your vehicle? Let’s just say you got a 2010 Honda, and the Honda’s worth about $5,000, and you owe about $5,000. That is an easy one for me, because if you owe $5,000, and it’s worth $5,000, there’s no equity to protect. You can just keep the car, keep making the regular payments, and that’s what’s called a reaffirmation. You reaffirm the debt. So when you file bankruptcy, bankruptcy is going to kill that contract with your car lender. You can reaffirm it or kind of breathe life back into that contract as long as the terms are good for you. It’s not 25% interest, or the payment is just ridiculous, or the car is falling apart. Standard agreement–you got a good car, you want to keep it, you want to keep paying for it. I have no problem with that.

One of the problems we face in Chapter 7 is when somebody owns a vehicle with a lot of equity in it. So let’s say you got a brand new Honda and it’s worth $15,000. The law only allows you to protect up to $1,000 of equity. So we need to have a conversation about that one to see, you know, what the car does, how it works for you, what the needs are for your family. And then how we can go ahead and protect that equity of the vehicle. So, in Chapter 7, if you want to surrender a vehicle and give it back, you can do that. You very simply state your intention: I’m going to surrender this vehicle. If you want to reaffirm it, you can say to the lender, hey I want to keep my car, keep paying for it, and then you sign what’s called a reaffirmation agreement. There’s another alternative called a redemption. Let’s say for example you owe $20,000 on a car that’s worth $5,000. I know that’s an extreme example, but believe it or not, this happens. You can actually go in and file what’s called a motion for redemption and say to the court: Judge, this car is worth five grand. I owe 20 grand. The theory behind a redemption is very simple. If you were to give that car back, that lender is only going to be able to take the car back and go out on the open market and sell it for $5,000. And then the rest of the claim gets discharged by the bankruptcy. So the lender’s only going to get five grand. You’re saying to the lender: I’m going to give you five grand right now. Not over time, not a new loan agreement–right now, and that’s what the car’s worth. But you have to come up with all that money right away. So, that’s something to talk about with the attorney.

If you have a car that’s got a little bit of a problem, feel free to sit down with your attorney and discuss the best way for you to keep your vehicle in Chapter 7. If you have any questions or you’d like to talk further, please feel free to call the Dellutri Law Firm. You’ll sit down with one of our attorneys and talk about how to keep your car in Chapter 7. So, I look forward to helping you in the future. Again, I’m Carmen Dellutri with Dellutri Law Group. You have a great day.