Attorney
Filing for bankruptcy can be an overwhelming experience, especially when you’re unsure about what property you may be able to keep. For many Alabama residents, having a car is essential for commuting to work, running errands, and maintaining their daily routines. Understandably, one of the biggest concerns when filing for bankruptcy is whether you’ll be able to keep your vehicle. The outcome depends largely on the type of bankruptcy you file, the equity you have in your car, and your ability to continue making payments. Here’s a breakdown of what to expect when it comes to your car in bankruptcy.
Chapter 7 Bankruptcy and Your Car
In a Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, some of your assets may be sold to pay off creditors. However, Alabama provides certain exemptions that may protect critical assets, including your car, so long as it falls within specific limits. These exemptions are designed to ensure that people who file for bankruptcy can retain essential items that allow them to continue working and living normally.
Under Chapter 7, whether you can keep your car largely depends on how much equity you have in it. If the equity is within Alabama’s exemption limit, your car is likely safe. However, if the equity exceeds this threshold, you may be required to either pay the difference to creditors or surrender the vehicle. This decision is made based on your financial situation and the balance remaining on your car loan.
What is the Alabama Vehicle Exemption?
In Alabama, bankruptcy law allows you to exempt up to $8,000 of equity in your vehicle. Equity is calculated as the difference between your car’s current market value and the remaining balance you owe on your loan. If the equity is below $8,000, you’ll most likely be able to keep your car under Chapter 7 bankruptcy. On the other hand, if the equity exceeds that amount, you might need to negotiate with the bankruptcy trustee or consider alternative options, such as paying the excess equity or surrendering the vehicle.
If you are still financing or leasing your car, it’s critical to remain up to date on your payments. While bankruptcy can protect you from certain debts, missing car payments could still lead to repossession, even in the midst of the bankruptcy process.
Chapter 13 Bankruptcy and Your Car
Chapter 13 bankruptcy also known as a reorganization bankruptcy, allows you to keep your assets while paying off your debts through a structured repayment plan over three to five years. In most cases, you can keep your car as long as you include your car loan in the repayment plan and continue making the necessary payments.
One of the benefits of Chapter 13 is that it may allow you to lower your car payments. For instance, if your car loan is older than 910 days, you might qualify for a “cramdown,” which means reducing the loan’s balance to reflect the car’s current market value. This can be a significant advantage, as it lowers the principal amount you owe and, in some cases, can reduce the interest rate on the loan as well.
While Chapter 13 allows more flexibility in terms of keeping your car, it’s important to remain committed to the repayment plan. Missing payments could result in losing your vehicle.
Bankruptcy Doesn’t Always Mean Losing Your Car
Filing for bankruptcy doesn’t automatically mean you’ll lose your car. In Alabama, the motor vehicle exemption and the flexibility offered through Chapter 13 allow many individuals to retain their cars, even when facing financial difficulties. Whether or not you’ll be able to keep your car largely depends on your individual financial situation, how much equity you have in the vehicle, and whether you’re able to maintain the necessary payments.
Pleasant Legal Solutions Can Help Those in Alabama Who Are Filing for Bankruptcy
If you’re considering bankruptcy and are worried about keeping your car, it’s important to seek guidance from an experienced bankruptcy attorney. At Pleasant Legal Solutions, we understand that the bankruptcy process can be stressful and confusing. Our team is here to assess your situation, explain your options, and help you determine the best course of action to protect your vehicle and other essential assets. Contact us today to schedule a consultation and learn more about how we can help you through this challenging time.