Keeping a car with Chapter 7

People love their cars. They would give up just about
everything they have, as long as they don't have to give up
their car. One of the great things about Chapter 7 is that
a person can typically keep their car, while eliminating
most or all of their unsecured debt. There are several
instances where a person can keep his car, while in a
Chapter 7 bankruptcy case.

These instances include:

The actual value of the vehicle falls within the stated
exemption amounts under either state or federal law. An
example of this situation is where someone owns a car
outright and the market price of the car is less than the
exemption amount provided by state or federal law. An
example would be a car that has a value of $1500 which is
paid in full.

A second instance is called the reaffirmation.
Reaffirmation on an auto debt is signing an agreement to be
fully liable for that vehicle debt on an ongoing basis
after the bankruptcy case has concluded. The advantage of
reaffirming a debt is that a debtor can protect the equity
that is in the vehicle, re-establish credit by making
continued payments on that vehicle, and of course, being
able to keep the vehicle. Oftentimes, a lender will
re-work the lone agreement so that the debtor is paying
possibly a lower monthly payment or possibly a lower rate
of interest in exchange for signing the reaffirmation
agreement. Some lenders are not so flexible. However,
under the current economic climate, I have seen an
abundance of lenders that are willing to negotiate the
terms in an effort to obtain a reaffirmation agreement.

The final method where a debtor can keep a vehicle with
Chapter 7 is to redeem the vehicle. The debtor winds up
making a one time lump sum payment for the entire fair
market value of the vehicle. This amount is typically less
than what is owed on the outstanding balance. The barrier
here is that the debtor typically does not have the ability
to make a lump sum payment of the fair market value of the
vehicle. There are certain lending institutions which
specialized in redemption lending. In those cases, the
debtor actually signs a new loan with a new company for the
fair market value of the vehicle and the original lender is
paid off. Although this may sound like a great idea,
oftentimes, the interest rate on the new loan is not much
better in the long run than continuing to pay for the
original loan.

With so many ways to keep vehicle while in a Chapter 7
bankruptcy, the debtor really stands in a great position to
maintain that item and continue to pay for it overtime.

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David M. Siegel is the author of Chapter 7 Success: The
Complete Guide to Surviving Personal Bankruptcy. He is a
member of the American Bankruptcy Institute and currently
practices bankruptcy law in Chicago and its surrounding
suburbs. Additional information is available at
http://www.chapter7success.com .