For most people in the State of Texas, a vehicle is necessary to get to work, to school, to the store or to see family and friends. In fact, the widest distance from one point of the Lone Star State to another has been measured at a staggering 800 miles! Around here, you need a car to get around.
For this reason, Texans considering filing for bankruptcy due to hard times have legitimate concerns that the loss of their vehicle might make times even harder. However, claiming bankruptcy and keeping your car is very possible, because Texas has some of the most generous legal protections available.
The trusted Houston Bankruptcy Attorneys at the Law Offices of Seth Kretzer can help you understand how to declare bankruptcy and keep your car, as well as get back on the road to financial recovery.
If I File Bankruptcy, What Happens to My Car in Texas?
The main point to understand is that a vehicle loan, unlike credit card loans and most personal loans, is something called a “secured debt.” This means the vehicle itself backs or “secures” the value of the loan, by serving as collateral for the loan. If the borrower is unable to make payments on the car loan, the lender traditionally has the right to repossess the vehicle.
Enter bankruptcy, a unique federally-created protection for many kinds of personal property in the State of Texas, which “stays” or places on hold most types of collection activities and lawsuits, including vehicle repossession. While bankruptcy is ongoing, a vehicle repossession generally cannot take place without the permission of the judge overseeing the case.
In Texas, there are several options for filing bankruptcy and keeping your car, motorcycle, SUV, or other personal vehicle. If you take no actions on your vehicle loan when you file for Chapter 7 (liquidation) or Chapter 13 (reorganization) bankruptcy, you may be relieved of your obligation to repay your car loan afterward, and your car also will most likely not be repossessed.
You may also redeem or reaffirm your car loan, potentially better options for rebuilding your credit and recovering from bankruptcy, both of which we discuss below.
Can I Keep My Car If I File Chapter 7 Bankruptcy?
Can you file bankruptcy and keep your car? The answer is yes. While you must include all your assets and debts, including your vehicle, in the Chapter 7 Bankruptcy filing, one personal vehicle per driver is considered “exempt property” under Texas law. See Tex. Prop. Code Ann. § 41.002(a)(9).
This means that the bankruptcy trustee will not forcibly sell your vehicle to pay other debts against your wishes, and the lender cannot repossess the vehicle while you are in bankruptcy.
Motor Vehicle Exemptions in Texas
Every state allows people filing for bankruptcy to keep certain types of property, up to a maximum dollar amount, or to keep the proceeds of the sale of that property, up to the same dollar amount. This includes motor vehicle exemptions. In Texas, the motor vehicle exemption is very generous and allows for the exemption of the entire value of one motor vehicle per licensed household member.
Even if the household member does not have a license, such as a minor child or other dependent, the bankruptcy filer can exempt the vehicle if the unlicensed person relies on the filer to provide them transportation. See Tex. Prop. Code Ann. § 41.002(a)(9).
So, how exactly does the motor vehicle exemption work? First, you must determine the present market value of your vehicle. The bankruptcy filer must calculate the “equity” they have in their vehicle, which is the market value of the vehicle minus the amount of the loan that remains unpaid. The calculated equity is the amount of the exemption.
If the vehicle is owned outright, then the only calculation needed is the market value of the vehicle. A free resource like Kelly Blue Book (www.kellybluebook.com) is helpful for determining that value based on the vehicle’s make, model, age, condition, accident history, etc.
If the bankruptcy filer has an outstanding car loan, the value can be estimated from Kelly Blue Book minus the remainder of the loan. Texas’s exemption is for this final calculated value. The bankruptcy filer may keep the vehicle, or the filer may sell the vehicle, and the full dollar amount of the vehicle will be considered exempt from the bankruptcy filing.
Reaffirming Your Car Loan
Another way to handle a car loan during bankruptcy is to “reaffirm” the car loan. Reaffirming your car is basically just resigning a renewed loan agreement in which the lender and borrower agree that the lender will continue to pay the remaining balance of the loan.
The reaffirmed loan could include better terms, a longer repayment period, or lower interest, depending on what the parties agree to. This is another one of the many ways your experienced bankruptcy attorney can help you through the nuances of the bankruptcy process.
Redeeming Your Vehicle
“Redeeming” your vehicle is another way to allow you to keep it and is an especially attractive option for those who owe more on their car loan than what their vehicle is worth, due to reasons like high interest payments. Redeeming your vehicle allows you to purchase your car outright for the current retail value. Although this could result in significant savings, it can be difficult for some people to come up with a large lump sum while heading into bankruptcy.
Stopping Your Payments
In Texas, there are several options for filing bankruptcy and keeping your car, motorcycle, SUV, or other personal vehicle. If you take no actions on your vehicle loan when you file for Chapter 7 or Chapter 13 bankruptcy, you may be relieved of your obligation to repay your car loan afterward, and your car also will most likely not be repossessed. You may also redeem or reaffirm your car loan, better options for rebuilding your credit, and recovering from bankruptcy.
Can I Keep My Car If I File Chapter 13 Bankruptcy?
If you file a Chapter 13 bankruptcy, you can continue to make payments under your current vehicle loan agreement or include your car payment in your monthly bankruptcy payments.
The expert consensus is that it is easiest of all to keep a vehicle when filing for Chapter 13 Bankruptcy because Chapter 13 is considered reorganization bankruptcy and is all about structured repayment. Chapter 13 allows you to keep most to all your property while making structured repayments for three to five years.
Can I File Bankruptcy and Keep My Car Loan?
It’s completely reasonable to wonder – ‘will filing bankruptcy affect my car loan?’ and ‘what happens to my car when I file bankruptcy?’
Rest assured that due to Texas’ exemption, your car will most likely not be repossessed, and you will be able to claim the maximum amount of value of the car if you decide to sell it off. You may also redeem or reaffirm your car loan, better options for rebuilding your credit, and being in a better financial position when bankruptcy is through.
The Law Offices of Seth Kretzer Can Help with Your Car Ownership Options During Bankruptcy
When you are trying to figure out how to manage your vehicle loan during bankruptcy, you will need a firm with specific experience on bankruptcy in Texas with the right knowledge and resources to help you.
Contact the Law Offices of Seth Kretzer online today to discuss your case and schedule a consultation.