Bankruptcy Lawyer Bryan W. Stone answers the question: “Can I buy a home after bankruptcy?”
Everyone knows that bankruptcy is a difficult process. One of the many difficult aspects of the bankruptcy process is deciding how to handle some of your personal property and corresponding debts. Vehicles are especially tricky given that you may not be able to afford the payments on the car, but may also fear being unable to make ends meet without it.
For many people, owning a car isn’t an issue of status, but instead one of practical necessity. For those who don’t live in a major urban area, life without a vehicle can prove to be enormously difficult. Taking children to school, running errands and getting to work without a car become difficult if not impossible chores. Though car payments can be pricey, it may be worth it when compared with the cost of being without a vehicle.
Many people fear that filing for bankruptcy means giving up their vehicle and thus their freedom of movement. Thankfully this is not the case. It is possible to keep a vehicle in a bankruptcy filing. Exactly how this work depends on the type of bankruptcy that is filed.
If you’ve filed a Chapter 13 bankruptcy, borrowers will continue to pay off their debts, restructuring their existing debts into a repayment plan. This means that you car loans will eventually be repaid, though the loans may be restructured depending on the age of the vehicle. If the car loan is more than 910 days old, then courts have said they will consider reducing the amount debtors owe depending on the fair market value of the vehicle. This means the amount owed can be reduced for those with loans on older cars. Those with loans on newer vehicles, less than 910 days old, will need to eventually pay the full value of the loan, though the interest rate could be reduced as part of the repayment plan.
The reason for this new vs. old distinction is that it protects those with old vehicles from having to pay thousands more for a car that is no longer worth the money. It also protects lenders from unscrupulous debtors running out and buying fancy new vehicles that they are then able to bankrupt and benefit from huge reductions in the amount of the loan.
If you choose to file a Chapter 7 bankruptcy, then you are given several options. One option is to reaffirm the debt, another is to redeem the vehicle and the final is to surrender the car. If you decide to reaffirm the debt then you are choosing to continue making payments on your loan to keep the vehicle. To do this you’ll need to sign an agreement promising to pay for the vehicle despite the bankruptcy. The risk here is that if you wind up unable to keep up with the payments and find yourself back in a similar situation.
If you redeem the car then borrowers are forced to come up with a lump sum amount needed to completely pay off whatever loan exists on the vehicle. As you might expect, this is a very difficult thing for most people to do given the financial problems they are facing.
Finally, surrendering the vehicle is basically what it sounds like. Borrowers decide they don’t want to keep paying the debt and simply return the vehicle to the lender. Though this may be hard to do if you rely on your car for transportation to and from work, it may be for the best if the payments are so expensive that the idea of reaffirming the debt is daunting. Getting rid of the payment may actually help you get a new car by freeing up money to save and use to buy a cheaper, possibly used vehicle.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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