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Chapter 7 and Chapter 13 To Protect Your Car From Forced Sale

Posted on 20 Feb 2011 by admin | Filled under: bankruptcy

When can you keep your car? What do you have to do ensure that you keep your car?

Research Notes:

•Chapter 7 can protect your car from a forced sale, chapter 13 may allow you to catch up on car loan debt (postpone the payment for a while)

•Chapter 7- state law determines what you can keep and what you can't keep.

•If you own the car- value determines whether it can be kept or not

•If you don't own the car (still owe money on it)-

1. reaffirmation: an agreement with the lender to keep making payments, and you agree not to receive a discharge of the debt for the car.

2. redemption: when you purchase the car outright for what you owe on it, which is difficult to do if you don't have the cash or someone willing to lend it to you

•In CA- can simply keep the vehicle and continue to make the payments so long as you maintain adequate insurance and are not past due at the time you file your bankruptcy

Losing your car to creditors can be a very frightening reality to face. Fortunately, there are options that will allow you, the debtor, to keep your car. If faced with this situation, a debtor has the choice of filing for chapter 7 or chapter 13 bankruptcy. Filing for chapter 7 bankruptcies can protect a debtor's car from a forced sale by the creditors.

On the other hand, a debtor can also file for chapter 13 bankruptcies, which will help to postpone the car payment for a short period of time and allow the debtor to catch up on his/her car loan debts. In both cases, state laws will help to determine what the debtor can or cannot keep.

California state laws allow the debtor to keep his/her vehicle and continue to make the payments so long as he/she maintain adequate insurance and is not past due at the time he/she files for bankruptcy. If the debtor happens to own the car, its value will determine whether it can be kept or not. If the debtor does not own the car and is still making payments on it, there are two options that are available: reaffirmation and redemption.

A reaffirmation is an agreement between the creditor and the debtor where the creditors agrees to continue making payments while the debtor agrees to not discharge the auto debt. A debtor can also choose to purchase the car and pay off the rest of the loan (redemption). Redemption is a very difficult option to take if the debtor does not have enough money to pay off the debt owed on his/her car.