Washington State Bankruptcy and Your Vehicle

Stop vehicle repossession with bankruptcy protection.

The biggest concern of many people asking about bankruptcy is whether they can keep their car. If you are making payments on a car, you can keep it if you can afford to keep making the payments. If your car is paid in full and you file a Chapter 7, you will be able to keep the car as long as you can cover its value with the bankruptcy exemptions. It is easier to keep a car in a Chapter 13.

If I file Chapter 7 bankruptcy in Washington State, can I keep my car?

The trustee in a Chapter 7 case can take assets to pay creditors and a car is no exception. However, the state and federal automobile exemptions of approximately $3,500 is enough to cover the equity of many cars that are paid in full. If you are still making payments on a car but you are close to paying it off, there will probably be equity in the car. The exemption would apply only to the equity, which is the difference between the value and the loan balance. You can also stack a “wildcard” exemption on your car, which can be as much as $11,975 under the federal exemptions.

If you are making payments on a car in a Chapter 7, you have three options. You can surrender the car and wipe out the loan. You can keep the car by continuing to make payments. You can also “redeem” the car by paying off the loan in a lump sum based on the cars value.

If you choose to keep making payments, you have to decide whether to sign a reaffirmation agreement. This agreement prevents the discharge from wiping out the debt. If you default on the loan after bankruptcy, you may still owe money after the car is repossessed. If you do not sign a reaffirmation agreement, the debt will be discharged and you could lose the car after bankruptcy and not have to pay anything. However, the car finance company may repossess your car without a reaffirmation agreement even if you are current. Some companies will tell you what their policy is.

If you choose a redemption, you have to file a motion with the bankruptcy court. The matter of the car’s value is usually worked out by your attorney and the bank’s attorney, though it could be decided by a judge. Once the redemption order is entered, you can pay off the car loan based on the car’s value. Some finance companies can lend you money for a redemption. Needless to say, this option only makes sense if you have a car that is worth a lot less than the loan balance.

Chapter 13 bankruptcy and vehicle repossession.

In a Chapter 13, you can combine your car loan with the rest of your debt. Car leases would probably have to paid directly. A car loan can be crammed down if the car was purchased over two and a half years ago. A cram down splits the loan into “secured” and “unsecured” components. The car is deemed “secured” only by the value.

That portion is paid in full but often at a lower interest. The rest is paid as “unsecured” at a rate between 0% and 100% depending on the terms of your plan. If your car is paid in full and your exemptions don’t cover it, you may find it easier to keep the car in a Chapter 13 because you can pay your creditors something through the plan to cover what they would have received in a Chapter 7 liquidation.

Stop vehicle repossession! Call for a FREE consultation with our experienced Tacoma bankruptcy lawyers today.

We know how important it is to keep your vehicle. It would most likely affect many aspects of your life when it comes to family, commuting to work and more if it were to be repossessed. Contact our Tacoma bankruptcy lawyers today with your questions, and let us help you explore your bankruptcy options.

(253) 444-5869