Yes, almost everyone is able to keep their car in bankruptcy. Here is how:
1. Exempt Equity – The easiest way to keep your car in bankruptcy is to have less than the exempt amount of equity. Equity is the difference between what you owe and what the car is worth. If you owe $24,000 on the car and the car is worth $30,000, you have $6000 in equity. If you owe more than the car is worth, you have no equity, or negative equity.
Vehicles are conditionally protected by exemption laws. $6,000 of your car’s equity is exempt and untouchable. If you are disabled, that exemption rises to $12,000. If you have little equity in your car or its value falls at or below the $6,000 limit, there is little chance it will be of any interest to the court.
2. Bankruptcy Planning – Even if your car has too much equity, the equity is only measured on the filing day. If you have more than the exempt amount of equity in your car, go get a title loan. The title loan will increase the amount you owe on the car. Make sure that if the car were sold, there would be less than the exempt amount of equity left. That way, the court will not be interested. For example, if you have a car that is paid off, and it is worth $10,000. Go get a $5000 title loan. Use the money to pay for necessities like paying your car payments, rent or utilities ahead. Then when you file, you have less equity in your car. It’s not illegal, as long as you are paying the loan back and you do not have the cash at the time of filing.
3. Lazy Creditors – Check if your lender properly secured against the vehicle. You can do this at azmvdnow.gov. If the creditor failed to secure against the vehicle, you might have more equity than you think. Additionally, Registration loans are not secured against the car. A registration loan is just a personal loan and will not reduce the equity.
4. Redemption – If you owe a substantial amount more than the car is worth, you might consider redemption. This is a motion with the court to buy the car for what it is worth, regardless of what you owe. It is the same to the court because if you forfeited the vehicle, they would have to sell it anyway. They just as well sell it to you. This is a good option, but you would have to come up with the money to pay for the car. There are some companies who will do this for you. 722redemption.com is one of them. A lot of law firms will not file these motions anymore since the Arizona bankruptcy judges stopped allowing payment for them. But it is still an option.
5. Keep and Pay – A sneaky way around being upside down on a car is called a Mustafa Order. This is an order made up by the court where you keep the car and just keep making payments. Once you are finished with the car, you can just tell the creditor to come and get it. You are not responsible for any of the negative equity or arrears on the car. This is a great way to keep your car, but still be able to get rid of it whenever you like. Some attorneys will not do a Mustafa order. It required an extra court appearance. You should not have to pay for this extra appearance. Ask the lawyer if he does Mustafa orders for free. If not, call us. We do.
6. Get a New Ride – Usually your best option is just to get a new or different car. You will normally qualify for a different car immediately when you file bankruptcy if you have not had a foreclosure in the last two years. You will have no debt and are able to make a monthly payment. You are a car salesman’s dream. If you need help with this, we have a dedicated car broker that can get you a loan the day you file and he will find a car for you, too. New cars are fun. Variety is the spice of life.