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Frequently Asked Questions About Bankruptcy
Can I Keep My Car If I File For Bankruptcy?
Unfortunately, the asnwer depends on the specific situation in each
individual case. What's important to know is that one should know the
rules and play by the rules. This is called bankruptcy planning.
First,
it depends on whether your car is paid for or whether you are still
making payments on it. That is, a preliminary issue is whether there is
any "equity" in your car. Thus, the first question you should ask
yourself is: how much is my car worth? You can look up your car's
value at autos.msn.com/kbb/default.aspx.
We like this site better than the official Kelly's Blue Book site
because it allows you enter most of the information much faster and let
you get values faster.
Once you know the value of your car, you
need to look to your state's law to see how much car you can
exempt. For instance, in Virginia that exemption is $2000.00,
while in Florida, for instance, it is $1000.00 (with another $1000.00
available for any personal property). Virginia, though, is
tougher than most states when it comes to bankruptcy.
So what
do you do if your are is worth more that the state exemption?
Well, you would need to see if you can exempt the excess value under
some other category of exemptions. For instance, in Virginia you
can use your "homestead exemption" (which is up to $5,000.00) to exempt
value of your car which exceeds the allowed state exemption of
$2,000.00. Of course, you can only do this if you have "room" (unused
portion) in your homestead exemption and you are not using it to exempt
your house or something else of value.
Another thing to be
mindful about here is that there is a special procedure for using your
homestead exemption to exempt some other asset, such as a car.
You need to draft and record a homestead deed in the county land
records, and you must do so in a timely manner.
What if you are
still making payments on a car? In that case, the bank will
probably send you a reaffirmation agreement. Tha problem with
such an agreement is that, if after bankruptcy you continue to pay for
your car and hit hard times again, the bank can go after you not only
for the car, but also for any deficiency left after the bank
repossesses the car. By contrast, if you don't sign a reaffirmation
agreement, as long as you continue to make payments on the car, the
bank will probably leave you alone. Notice that I said
"probably," because technically the bank in most cases has the right
repossess your car based on the mere fact that you have filed for
bankruptcy. Thus, it all depends what risk you are willing to
take. Some people do not like to take even a very small (de
minimus) risk.
In bankruptcy, it is all about knowing the rules, planning, and playing by the rules.
Bankruptcy And Deficiency Judgments
Virginia allows deficiency judgments, as to the majority of
the states. What this means is that if you fail to make
payments on your house and the bank forecloses, they can still go after
you for the "deficiency" – the difference between what you owed for the
house and what the house sold for in foreclosure. What's worse,
most of the time the foreclosing bank will sell your delinquent account
so some other debt collection company, and now these "vultures," as
they are often called, are coming after you.
What do you
do? Well, the possibility of a deficiency judgment is just
another factor that counsels in favor of bankruptcy in some cases, as
bankruptcy will wipe out liability for any potential deficiencies as
unsecured debts. In other cases, you may be better off
negotiating a "release" from the bank during the process of
foreclosure.
In any event, make sure that this issue is
addressed in your particular situation to avoid any extremely
unpleasant surprises in the future.
Anr
ton.
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