Without a reliable means of transportation, getting to work could be challenging. Individuals already suffering from heavy debts and reduced income may plan on filing for bankruptcy, but worries about what happens to their vehicle can contribute to more stress. A Chapter 7 bankruptcy filer in Virginia may want to keep their car and continue paying the loans. Alternatively, the filer might wish to get rid of a vehicle to eliminate debts.
Chapter 7 bankruptcy and vehicles
Chapter 7 and Chapter 13 bankruptcy provide a way to start over when a person is suffering from disastrous financial hardships. Chapter 13 bankruptcy involves some discharged debt but mainly consists of a payment plan to deal with creditors. Chapter 7 bankruptcy involves liquidation bankruptcy and the discharge of unsecured debt. A car loan does not represent unsecured debt, so those entering Chapter 7 may wonder how the courts address vehicle obligations.
If the debtor can continue making payments on the vehicle, the court might allow the person to keep the car. A debtor worried about continuing the loan or lease payments may choose to give up the car. Perhaps eliminating car payments could open doors to getting back on financial footing easier. Some people need their vehicles, so walking away is not an option.
State exemption amounts
If a vehicle is paid off or almost paid off in Virginia, the state’s bankruptcy exemption vehicle amount is $6,000. Splitting the figure between two cars is possible.
When the equity amount is less than the exemption amount, the debtor may keep the vehicle. A trustee could not force the debtor to sell the car. Those who still owe money on a vehicle with more equity than the exemption could lose it to liquidation or repossession. Although it’s possible to keep a car during bankruptcy, it’s wise to carefully evaluate whether that’s the best option.