Motor Vehicles in Bankruptcy

One of the most common questions I am asked by Debtors is, "Can I keep my car in a bankruptcy?" The answer is, "If you want to keep your car, you can almost always keep your car." One scenario in which you may not be able to keep your car would occur when you have more equity in your car than you can exempt. In Wisconsin, if you have $4,000 or less in equity in your vehicle you can usually exempt it. If you have more equity than that, then, it depends. The most equity you can possibly exempt in a vehicle in Wisconsin is $17,900. How is a car loan treated in a bankruptcy? There are four options in Chapter 7: reaffirmation; ride-through; redemption; and surrender. In Chapter 13, depending on the circumstances, you can: continue to pay your loan outside the Plan; pay the loan off in your Plan over a longer period of time and possibly at a lower interest rate; pay off the loan with a principal reduced to the value of the vehicle ("cramdown"); surrender the vehicle; or a combination of the afore-mentioned. I will be describing those options in more detail in subsequent blog entries. For an explanation of what exemptions are and how they work, give us a call.