Bankruptcy is designed to allow you to keep your vehicle – even if you are
behind on payments.
In Kansas, a person filing for bankruptcy can keep one vehicle for daily
use. The vehicle is “exempt property.” If a couple files for
bankruptcy, they can each keep a vehicle. If you have more than one vehicle
each, your bankruptcy lawyer can give you options on what to do.
A loan on a vehicle is a secured debt. Normally, if you owe money and do
not make the payments, the creditor can repossess the vehicle. However,
when you file for bankruptcy, the
automatic stay prevents the creditor from possessing, even if you are behind. We commonly
file cases within a few business days in order to beat the repo man.
Your Options Through Bankruptcy
When you file for bankruptcy, you have a choice with your car payment.
You can surrender the vehicle and owe nothing, or you can keep the vehicle
and pay for it.
The option is yours.
If you surrender the collateral, the bank sells the property and applies
the proceeds against the note. The Bankruptcy Code treats the remaining
balance (if any) as a dischargeable debt, treated in the same manner as
a credit card – it goes away once you receive your discharge. With
very limited exceptions, you do not need to pay the remaining balance.
If you are saddled with driving a lemon securing an “upside down”
loan, this is your chance to get rid of that whole problem. If you decide
to keep the vehicle, the chapter in which you file matters.
Chapter 7 vs. Chapter 13
Chapter 7, the terms of the note remain unchanged. If you keep the vehicle, you
pay at the contract interest rate, and make the required contract payments.
In addition, you sign an agreement, called a reaffirmation, making yourself
personally liable for the debt, even after your discharge. This effectively
removes the car note from the bankruptcy. Chapter 7 is a “take it
or leave it” proposition when it comes to car payments.
Chapter 13, you can change the terms of the note. The Plan changes the interest rate
on the note to the “Till” or “discount” rate.
The Court assigns this standard rate to all secured claims in a Chapter
13. As of May 2015 in Kansas, the current rate is 4.75%. This is usually
(but not always) lower than your loan agreement. A lower rate means more
money goes to principal, and the Plan pays the note down much more efficiently.
In addition, if you purchase the vehicle more than 910 days before filing,
or if the debt is a payday or title loan, you may be able to pay the value
of the car, rather than the balance of the contract. This is only available
in a Chapter 13 Plan. For instance, if you owe $9,500 on your 2006 Kia
Sodona, and are paying at 18%, the Plan can amend the contract to pay
the $4,600 the vehicle is worth, at 4.75%. This “cram down”,
combined with the interest rate deduction, can greatly benefit your budget,
lower your payments, and put money in your pocket from the outset.
Either way, you are able to take control of your financial life. Our Topeka
bankruptcy lawyer at Garrett Law LLC wants to help.
online or by
phone today to learn how we can help you keep your property and rebuild your life.