If you are experiencing financial difficulty and are behind on your car payments, turn to Chicago Bankruptcy Clinic. When you consult with us, we will work with you to explore all your options for saving your car in bankruptcy.
Well-versed in the U.S. Bankruptcy Code and the applicable state exemptions under Illinois law, we regularly help our clients navigate Chapter 7 and Chapter 13 bankruptcy proceedings. Because we understand your financial challenges, we offer free consultations and affordable payment plans. Please contact our office today to speak with one of our experienced bankruptcy lawyers.
What Happens to My Car in Chapter 7 Bankruptcy?
In Chapter 7 bankruptcy, most of your debts are discharged. In exchange, the bankruptcy trustee will sell your nonexempt property and use the proceeds to pay your unsecured creditors. Generally, saving your car in Chapter 7 bankruptcy depends on (1) whether your equity is exempt and (2) whether you are behind on your payments.
Illinois provides bankruptcy filers with a motor vehicle exemption of up to $4,000. If the equity in your car is significantly higher than this amount, the trustee may sell the vehicle, return the exemption amount to you, and use the remaining proceeds to pay unsecured creditors.
However, using the “wildcard exemption” can help you make up the difference and allow you to keep your car (Illinois law allows you to claim an additional $4,000 in exemptions), as long as you can pay the trustee the amount of the nonexempt equity, if any.
If you are behind on your car payments, Chapter 7 bankruptcy does not provide a process for paying off the arrearage. If you cannot work out a deal with the lender, the vehicle will be repossessed. The options for your car in Chapter 7 include:
- Surrender the vehicle — If you cannot afford the payments, you can surrender the vehicle. The creditor can then seek a court order to lift the automatic stay to repossess the vehicle or wait until after the bankruptcy is discharged to do so.
- Reaffirm the loan — You may be able to enter into a new payment agreement with the creditor, however, you must be able to demonstrate that you can make the payments to gain the court’s approval. In any event, you remain liable for the debt despite the bankruptcy discharge, which means that the creditor can repossess the car if you fail to make the payments.
- Redeem the vehicle — You can redeem the car by paying its market value to the lender. Because you must be able to make a lump sum payment, this may not be a viable option.
At Chicago Bankruptcy Clinic, we have extensive experience helping financially distressed individuals save their cars in Chapter 7 bankruptcy. Whether you are able to affirm the loan or redeem the vehicle, we will put you in a position to keep your car. For those who have significant equity in their car, however, filing for Chapter 13 bankruptcy may be a better option.
Saving Your Car in Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, you can keep your property as long as pay back some debts in a three or five-year repayment plan. If you want to keep your car, you must stay current on your car payments. If you are behind on your payments when you file, the arrearage can be included in your Chapter 13 repayment plan.
Chapter 13 also provides a way to reduce your car loan known as a “cramdown.” This is especially helpful if your vehicle is worth less than the amount of your loan. As an example, if your car is worth $5,000, and the balance of your auto loan is $10,000, you can cram down the loan to $5,000 through your repayment plan. The remaining $5,000 will be folded into your unsecured debts and possibly discharged. In any event, the complexities involved in Chapter 13 bankruptcy filings make it wise for you to consult with an experienced bankruptcy lawyer.
Contact Our Experienced Chicago Bankruptcy Attorneys
If you are behind on your car payments and facing repossession of your vehicle, don’t delay. Contact Chicago Bankruptcy Clinic today. Our legal team has developed proven strategies for saving your car in bankruptcy. When you become our client, we can help determine whether Chapter 7 or Chapter 13 bankruptcy is the best option for you. We will also explore ways of avoiding bankruptcy, such as renegotiating your debts.
Above all, we will always put your best interests first and stand by you every step of the way. We have a well-earned reputation as dedicated advocates who provide our clients with informed representation when they need it most. Please contact our office for a free consultation with one of our bankruptcy lawyers.