Misconceptions about bankruptcy abound. A common one is that you will lose your vehicle during proceedings to repay your creditors. Even if you’re in dire financial straits, this concern may make you hesitant to file. While some people do forfeit their vehicle during bankruptcy, your circumstances may allow you to keep yours.
Keeping your car
Keeping your vehicle is easier if you file Chapter 13 bankruptcy than Chapter 7 bankruptcy. Your auto loan will count as part of your Chapter 13 repayment plan. This plan allows you to keep your property so long as you pay your creditors over a period of three to five years. If you have owned your vehicle for more than 2 ½ years, you may qualify for a cramdown under Chapter 13. A cramdown would allow you to pay off the current market value of your vehicle, rather than the remaining balance on your auto loan.
Florida’s bankruptcy exemptions may help you keep your vehicle if you file Chapter 7, though this is difficult. The state’s vehicle exemption allows you to keep one car that you have no more than $1,000 of equity in. This amount may seem small. But the state’s statutes also permit you to take a $4,000 wildcard exemption, so long as you do not take a homestead exemption during proceedings. The wildcard exemption increases to $8,000 if you are married. And you can apply it toward a second vehicle or a vehicle you have more than $1,000 of equity in.
Losing your car
Losing your vehicle is more common in Chapter 7 bankruptcy than Chapter 13 bankruptcy. If Florida’s vehicle exemption – or wildcard exemption – does not cover the equity in your car, your bankruptcy trustee may end up selling it to repay your creditors. If you file Chapter 13 bankruptcy, you will only lose your vehicle if you cannot keep up with the repayment plan you established.
Forfeiting your vehicle during bankruptcy proceedings is a frightening prospect. But by knowing the provisions that allow you to keep yours, you can use it as a tool to move along the road toward financial recovery.