Will I Lose My Car if I File for Bankruptcy?

Will I Lose My Car if I File for Bankruptcy?

For many people, a vehicle is one of the few possessions that offers independence and value, so losing it in bankruptcy is devastating. If you are facing major financial problems and have concerns about losing your car in a bankruptcy, the first and most important step is to hire a reputable Herkimer bankruptcy attorney.

Seeking Protection

Because there are numerous facets of bankruptcy, you need a top-quality Herkimer bankruptcy lawyer on your side. The amount of money owed on the vehicle, if any; the current balance; and whether you are up-to-date or behind on payments will be determined. While bankruptcy offers a number of benefits, it is not a perfect solution. Therefore, losing possession of your car is a real possibility if you are not current on payments to the lender.

With a Chapter 7 bankruptcy, the lender will repossess the car if payments are behind. Therefore, your Herkimer bankruptcy attorney will advise you to catch up prior to and even after filing. For Chapter 13, the court will offer you the chance to bring payments current.

Determining Car Value

Your attorney will also help to determine the value of your car. Valuation from an expert or the dealer is mandated if there is a secured loan. However, if the loan is paid off, private party or trade-in valuation will probably suffice. Once the value is determined, equity is calculated by deducting any amount owed to the lender.

For example, if the value is $12,000 but the outstanding loan is for $9,000, equity is just $3,000.

Home Equity

Prior to talking to a Herkimer bankruptcy attorney, you may feel confused as to what your home equity has to do with your car. In truth, your home’s value and any outstanding mortgage balances are important. For one thing, the court can determine if carrying a car loan would be too much for you or something that you could handle.

When you file for bankruptcy in New York State, you have two options – state and federal exemptions.

With New York State exemptions, each person who owns a home gets protection for up to $75,000 of equity. Therefore, if you own your home with another individual, the total amount of protection jumps to $150,000. In comparison, only $22,000 is offered through federal exemptions for home equity protection.

If there is only a small amount of equity in your home or you do not own a home at all, the federal exemption of $22,000 can be used to protect your car in the bankruptcy case. In this case, if you have only a small amount in car equity and do not own a home, using state exemptions to protect your vehicle would be challenging.

It is up to the court-appointed trustee to determine the outcome of your car, which could consist of it being sold, the court taking it, or the equity going to the lender. Keep in mind that on occasion, a vehicle can be purchased back, but for this, the trustee must grant permission and the money has to be paid quickly.

Because bankruptcy can be complicated, it’s important to find a local bankruptcy attorney you can trust. Our Herkimer bankruptcy team is here for you. Your confidential, no-obligation phone consultation is always free. Call us today at 855-269-2889 to discuss your options.


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