CHAPTER 7 BANKRUPTCY & YOUR VEHICLE

Your Options

There are two options when you are filing Chapter 7

Bankruptcy, when it comes to your vehicle:

1. To surrender (turn in) your vehicle.

2. Keep your vehicle.

Walk Away From the Vehicle

Depending on your situation whether you lease your vehicle or have a car loan there are

ways to walk away from the vehicle and the debt.

When filing bankruptcy you would list the lender on your schedules and state that you

intend to surrender the vehicle- that is, turn it in to the lender. This will clear you of any

further liability on the debt after your bankruptcy, in most circumstances.

If you are leasing you car, you can get out of the lease by rejecting the lease .

Keeping the Vehicle You’re Stilling Paying For

If you want to keep the vehicle you are making payments on, regardless of what else is going on in your bankruptcy. You should continue to make payments as

scheduled.You do have a choice on how you keep the

car: Redemption

Reaffirmation Retain & Pay

Redemption Redemption- When the debtor obtains legal

title to collateral for a debt by paying the creditor the replacement value of the collateral in a lump sum.

Meaning you can pay the lender a lump sum to purchase the car at its current value.

Reaffirmation Agreement Reaffirmation Agreement- An

agreement made between a creditor and the debtor that waives discharge of a debt that would otherwise be discharge in the pending Bankruptcy proceeding.

Meaning entering into a new contract which lets you keep your car under much the same terms as your original car’s promissory note (but this time around it can be negotiable).

Reaffirmation Agreement If the lender requires you to reaffirm the

promissory note and you do reaffirm it consider CAREFULLY whether it is the right choice for you!

When you reaffirm the lender will have the right to repossess that car if you default on your payments and YOU WILL OWE any deficiency that remains on your loan if that happens.

If you had not reaffirmed but continued to make regular payments on the vehicle and suddenly lost your job- in most circumstances you would still be able to walk away from the vehicle and the debt without owing anything.

Retain & Pay There are instances where the lender

will let you keep the car without entering into a reaffirmation agreement, by simply allowing you to continue to make payments under the old agreement- this is known as The Ride-Through Option or Retain and Pay

If You Own Your Car Out Right If you have a vehicle that is owed out right and choose to

keep that vehicle under Colorado Bankruptcy Exemption Rules you are entitled to $5,000 vehicle exemption, more under other circumstances.

Meaning, if your car has a Kelly Blue Book value of $12,500, in order for you to keep your vehicle you would need to pay the Trustee approximately $7,500 (the difference between the value of the car and the exemption). However, be careful the Trustee is not required to take money, and could just liquidate the vehicle.

If you chose to surrender that vehicle and the Trustee is willing to take the vehicle and sell it for $12,500. You would receive $5,000 and the rest of the funds would go to pay the other creditors listed in your bankruptcy.