When filing for Chapter 7 bankruptcy in Arizona, many people wonder whether their cars will be one of the assets lost. Consulting with a Phoenix bankruptcy lawyer will help you bring clarity to your particular financial situation. Chapter 7, also known as straight or liquidation bankruptcy, frees you of debt by having your possessions allocated by a trustee. This trustee determines which items will best be sold to pay your debts, and if you have a lot of equity in your car, it could be on the table. There are, however, ways and circumstances that will leave your car relatively protected during a Chapter 7 filing.
If You Own Your Car Outright
If you own your car entirely, things are a bit less complicated when it comes to the retention of your vehicle during a Chapter 7 filing. Each state sets an exemption limit for vehicles, meaning that up to that amount of your vehicle’s equity is untouchable by the bankruptcy. In Arizona, that limit is set at $6,000. Therefore, if your car costs less than or only slightly more than the limit, it will likely not be a viable option for liquidation as a way of repaying debts.
If you have a large amount of equity in your car or its value is much higher than the $6,000 limit, however, it may be in jeopardy of sale. Working with an experienced Phoenix bankruptcy attorney may help you secure it, but there is a chance that your vehicle could be lost during the proceedings.
If You Are Still Paying Your Car Off
There are more options if you are still paying your car off. A car still being paid for makes things a bit more complicated, but it doesn’t necessarily mean the vehicle will be lost. Here are some things to consider if you are still making payments on your car:
- Willfully surrendering the car. If one of your primary sources of debt is your vehicle, you may consider surrendering it and vacating the lease for debt exemption. Choosing to walk away from your car may not be an easy decision, but if that is the path you take, it is a fairly simple process. To turn your car back over to the lender, list them on your Statement of Intent as someone you intend to turn the car over to. They will take possession of the vehicle, and your debt will be expunged.
- Keeping your car through a new contract. Sometimes surrendering your car is not an appealing option. One way to keep the car you have been leasing is by continuing to pay your monthly fees, but this will require a bit of legwork. This agreement, known as “reaffirmation,” begins by you declaring on your Statement of Intent that you plan to continue to pay off your car. This intent will then be reviewed by the courts and the lender, and if it is approved, you will be granted a new contract under which to continue making payments.
- Purchasing the car outright. Also called “redemption,” the act of outright purchasing your vehicle with a lump sum is another way you can retain your unowned car. The sum due will be the current value of the car, meaning you don’t have to worry about the loan balance. If, for example, you owe $5,000 on your car loan but the existing value of your car is only $2,500, you will only owe the value. The interest or loan payments will be wiped away.
When filing for bankruptcy in Arizona, if you are hesitant to put your possessions into possible liquidation, you may want to consider filing for Chapter 13 bankruptcy. During this type of claim, no property will be liquidated, and your debts will be paid by use of a payment plan rather than the sale of property. If you are concerned about your vehicle during these filing, contact us with any questions you have regarding either Chapter 7 or Chapter 13 and one of our highly skilled Phoenix bankruptcy lawyers will be happy to assist you.