Alabama Bankruptcy — “Will I Lose My Car If I File For Bankruptcy?”

A very common question when Alabama consumers are looking at filing a bankruptcy is “Will I lose my car if I file?”

The answer is it depends.

Here are some items to consider that we will look at it more depth:

• Did you file Chapter 7 (“straight bankruptcy”) or Chapter 13 (“debtor’s court”)?
• Are you behind on your car?
• Do you have equity in the your car?
• Are you upside down in your car?
• Do you want to keep your car?
• Can you afford your car?

Let’s take a look at each of these.

Did you file Chapter 7 (“straight bankruptcy”) or Chapter 13 (“debtor’s court”)?

Chapter 7 bankruptcy is where you wipe out your debts, including car loans.

Chapter 13 is where you put your debts into court (some call this “debtor’s court”) and you pay them off over 3 or 5 years.

With a Chapter 7 bankruptcy, if you are successful you will receive a discharge from your debts, including your car loan.  You can, under some circumstances, agree with your car loan company to “re-affirm” or “re-agree” to the loan.  In this situation, it is as if you never filed for bankruptcy.

But you may not be able to do this as we will discuss below.

Also the car loan company may not agree to re-affirm — it takes both you and your loan company agreeing to this.  Even if you don’t reaffirm, however, you can normally keep your payments current and normally the car company will not repo the car.  Do check with your bankruptcy lawyer to make sure you understand this and to figure out if this applies to you or not.

In a Chapter 13 bankruptcy, as long as you make your required payments then you should be able to keep your car.

Are you behind on your car?

If you are then the car company may not agree to re-affirm in a Chapter 7 bankruptcy.

In a Chapter 13 bankruptcy this is not as important as you can normally put the past due amount into court and make payments on it.

Do you have equity in the your car?

This is important only in a Chapter 7 bankruptcy — it is possible (very unlikely though) that your car is worth so much money (more than you owe) that the bankruptcy trustee decides to take your car to sell it and pass along the proceeds to your creditors.

It is critical that you fully disclose everything about your vehicle so we can determine the value of it and share that with the bankruptcy trustee.

In a Chapter 13 bankruptcy the equity in your car is not nearly as significant as in a straight bankruptcy.

Are you upside down in your car?

If you owe more money that your car is worth (a common situation) then you need to decide if it makes sense to keep your car.  Do you really want a car that is not worth what you owe on it?

Do you want to file a Chapter 7 bankruptcy, get a discharge of all of your debts, and then re-affirm a loan on a car that is “underwater” where you owe more than it is worth?

If so, that is your choice for the most part (the court does have to approve the re-affirmation).

Even in a Chapter 13 bankruptcy, you still need to ask yourself if you want to keep a “bad deal” car.

Now sometimes you do — the car is reliable and you are comfortable paying more for it than it is worth or you may be concerned about whether you can get another car loan (talk to us if this is a concern).

Do you want to keep your car?

Similar to the last point, do you want to keep your car?

If so, look to re-affirm in a Chapter 7 bankruptcy.  Or simply include it and make all of your payments in a Chapter 13 bankruptcy.

Can you afford your car?

This is important in any type of bankruptcy.

The whole point of bankruptcy is to get you a fresh start so that you can enjoy life and not be crushed by debt.

So . . . if you cannot afford your car . . . then why try to keep it?

If it is going to put stress on you and keep you on the edge financially, why do that?

Bottom line — talk to your bankruptcy lawyer to find out what option is best for you.

We will be happy to meet with you if you live in Alabama — call us at 205-879-2447 or fill out our contact form online and we will either email or call you back as soon as possible.  Filing bankruptcy is a major decision and you need to make sure you understand the positives and negatives of it before you file — let us help you.