Protecting Your Car in Chapter 7 or Chapter 13 Bankruptcy

March 29, 2012

Protecting Your Car in Chapter 7 or Chapter 13 Bankruptcy

The Bureau of Labor Statistics, a division of the U.S. Department of Labor, reports that the national unemployment rate was 8.5 percent at the end of 2011. This was a slight improvement from earlier in the year when unemployment hovered well above 10 percent. However, although the job market is slowly turning around, millions of Americans are still facing financial hardship and are desperately seeking a fresh start.

Many people have filed for bankruptcy protection to get started on the road to financial recovery. In fact, according to U.S. Bankruptcy Court statistics, over 51,000 Ohio residents filed for bankruptcy from Sept. 2010 to Sept. 2011.

Benefits of Bankruptcy Protection: Car Loans

Filing for bankruptcy offers some immediate benefits. For example, an automatic stay goes into effect as soon as the court receives a bankruptcy petition. This stay prohibits any creditor or collection agency from initiating or continuing any collections efforts on the individual's debts.

One of the most common types of debt handled in bankruptcy is a car loan. Car loans are known as "secured debt," which means that your vehicle is offered as collateral for your loan. As a result, your loan company has the right to repossess the vehicle if you fall behind on your payments. However, vehicles are one item many individuals and families cannot go without, so the bankruptcy process offers several options for people to keep their vehicles.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy requires a person to liquidate his or her non-exempt assets to repay creditors, and it offers debtors several options regarding their vehicle loans:
-Redeem: Debtors can pay one lump sum to their creditor for the car's fair market value, thereby eliminating future payments.
-Reaffirm: Debtors can continue making payments as they did before filing for bankruptcy (retains the status quo).
-Surrender: Debtors may give the vehicle back to the creditor and have the remaining debt discharged.

Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, a debtor remains in control of all of his or her property. Rather than liquidating assets, a three- to five-year repayment plan is developed, and a debtor uses his or her disposable income to slowly repay creditors. Depending on how long ago a car was purchased, a debtor may either owe the remaining amount due on a loan or only the car's current fair market value.

Filing for bankruptcy is an important decision, and it can be appropriate when someone is overridden with debt. Anyone considering bankruptcy should speak with an experienced attorney to discuss their eligibility and legal options for a fresh financial outlook.

Article provided by Cope Law Offices, LLC
Visit us at http://www.copelawoffices.com