BUT IF I FILE BANKRUPTCY, WON’T THEY TAKE MY CAR?
By Shawn Doan,
One of the most frequent questions I get from clients is “If I file Chapter 7 bankruptcy won’t they take my car?” Virtually everyone who asks me this question gets the same monotonous blurted out response, “Do you want to keep your car? Then you will.” When people want to keep their cars, they usually do. Only in the rarest occasions will someone lose their car involuntarily.
For instance, I once had a case where the local dealership that sold the car failed to follow proper registration procedures with the Department of Motor Vehicles. No surprise there. In that case the Chapter 7 trustee appointed to the case used her mighty avoidance powers to take the car free and clear of the lien, a process we call lien stripping in bankruptcy jargon. This trustee sold the car at auction, after giving plenty of notice to everyone what she was doing. After reimbursing her expenses from the auction proceeds, the little remaining monies were distributed equally to all of my client’s unsecured creditors. But even in this rare situation, my client was offered first right of refusal and could of actually kept the car with a better deal probably than that what the stealership tried hanging him with.
Huh? Did you just say the Chapter 7 trustee might not only take my car but then try to sell it back to me? Stay with me now, it will all come together. First remember, this is a rare situation. I’ve only seen it actually happen once despite having overlooked close to 10,000 filings in the last 10 years! You see when the trustee avoided the prior lien, she basically stripped away the lien securing my client’s vehicle to the loan, or debt. The debt tied to the car went from a secured debt to an unsecured debt, the same status as Cash Call and Sears. We know in Chapter 7 bankruptcy most if not all of your unsecured debts will be discharged, so as long as you complete your case. In other words, the original car creditor debt will be wiped out with everyone else.
But I just filed for Chapter 7 bankruptcy, I don’t have money to rent a house let alone pay a Trustee! Well, only in America do we cater to even the freshly bankrupt! Would you believe me if I told you there are national banks out there itching and competing to lend you money, even if you are in bankruptcy! But even in this “credit crunched” economy as I heard mentioned on am radio driving to work this morning? Yes! US Bank underwrites a program with www.722redemption.com, they’ll lend you money to purchase or refinance a vehicle while you are still in bankruptcy! It’s actually a requirement that you complete your bankruptcy to qualify! But don’t take my word for it, go Google it!
Though there are other instances you can technically lose your car if you file for bankruptcy, reality is it rarely happens and doesn’t necessitate discussing in most instances. If you unfortunately lose your car after filing, my moneys on a) you either failed to disclose the car in your schedules, b) you had one lousy bankruptcy attorney, or c) you tried passing off that beautifully restored ‘67 Ford Mustang as a beater. In the situation where my client tries convincing me their ‘65 Mustang is worth only $3,500 I’ve developed a simple way to advise them whether they might lose the car. I simply watch their facial expression when I tell them I’d give them $5,000.00 for it now on the spot.
Next Blog, Ill discuss another rare instance where someone could possibly lose their vehicle to certain creditors. Yes, Ford and Chrysler seem to be the only creditors in this category. But this can easily be avoided, and we have a case presently on appeal. Depending upon the Court Decision, we may be creating new law which will permanently stop Ford and Chrysler from this loophole. In the meantime, we will show you how to easily avoid such a situation should it arise prior to the Court’s ruling.