Information in this article does constitute legal advice, is for informational purposes only and may not constitute the most up-to-date information. Readers should contact their attorney for advice to any particular legal matter.
If you're considering protecting your vehicle in Chapter 7 by changing the name on the title, there are several potential risks you should be aware of. In fact, attempting to do so could result in your case being dismissed, your property being seized, and even allegations of bankruptcy fraud. Instead, your best course of action is to consult with a bankruptcy lawyer who can advise you on the proper steps to take to protect your vehicle while ensuring that you stay within the bounds of the law.
What Happens if I Change the Name on My Car Title to Protect a Vehicle in Chapter 7?
If you're thinking about changing the name on your car title, it's important to know that it's considered a transfer, whether or not you receive any money. If you transfer an asset for less than its fair market value just before filing for bankruptcy, it's not allowed.
If you do this, the Chapter 7 trustee could sue the person who now has the vehicle's title to seize the asset for the bankruptcy estate. If the trustee can prove that changing the name on the car title was fraudulent, the court could dismiss your bankruptcy case and impose fines and prison time for bankruptcy fraud. A trustee can petition to void a fraudulent transfer within two years of filing bankruptcy or the amount allowed by state law, whichever time is longer.
If you sell your vehicle before filing for bankruptcy for an amount below the fair market value, the trustee might be able to void the sale. Additionally, if you used the funds from the sale to repay friends or family members or make preferential payments to some creditors, the trustee could sue the recipient to recover that amount for the bankruptcy estate.
Instead of changing the name on your car title before filing for bankruptcy, you can protect your vehicle in Chapter 7 by using bankruptcy exemptions.
Protecting a Vehicle in Chapter 7 with Bankruptcy Exemptions
If you're considering filing for Chapter 7 bankruptcy, you may be wondering if you'll lose your car. The answer depends on whether your car has equity, which is the difference between its fair market value and what you owe on your car loan.
The Chapter 7 trustee's job is to find assets that can be sold to pay off your unsecured creditors. Unsecured debts are those that don't have a lien on any assets. Examples of unsecured debts include medical bills, personal loans, judgments, income taxes, student loans, alimony, child support, foreclosure and repossession deficiencies, credit cards, and old gym memberships, lease payments, and rental payments.
If your car has excess equity, the Chapter 7 trustee can sell it and use the proceeds to pay off your unsecured debts. However, if your car doesn't have any equity, the trustee can't use it to pay off your creditors.
For example, if your car is worth $15,000, but you owe $20,000 on your car loan, there's no equity for the trustee to use. But if your car is worth $25,000 and you owe $15,000 on your car loan, you have $10,000 in equity that could be used to pay off your debts.
However, bankruptcy exemptions protect specific amounts of equity in property, including your car. This means that if the $10,000 excess equity in your car is covered by a bankruptcy exemption, the Chapter 7 trustee can't seize your car.
What Are Bankruptcy Exemptions?
When faced with a financial crisis, it can be difficult to know where to turn. Fortunately, the United States Bankruptcy Code includes federal bankruptcy exemptions that can help debtors retain some assets while they recover and rebuild. These exemptions protect the equity in specific assets from creditors and the court, providing much-needed relief to those struggling with debt.
It's worth noting that some states require debtors to use state bankruptcy exemptions instead of federal ones. If you're concerned about protecting your vehicle in Chapter 7 bankruptcy, our free bankruptcy exemptions calculator can help you estimate the risk to your property. Don't let financial worries overwhelm you - explore your options and take control of your future today.
How Do Bankruptcy Exemptions Protect a Vehicle in Chapter 7?
Did you know that the federal bankruptcy exemption for a vehicle is currently set at $4,450? That means if you file for Chapter 7 bankruptcy, you might be able to keep your car as long as its equity is less than $4,450. Married couples can even double that amount to $8,900.
But what happens if the equity in your car is higher than the exemption? Well, the Chapter 7 trustee in charge of your case might decide to seize the asset. Before doing so, however, the trustee will carefully analyze the value of your car for the bankruptcy estate.
First, the trustee will estimate the fair market value of your vehicle at a quick sale, which could be less than its actual market value. Then, the trustee will deduct the lien payoff, costs of sale, and their own proceeds. Finally, the trustee will subtract the claimed exemption. If the result is positive, there is some value for the bankruptcy estate.
Whether or not the trustee decides to seize your car depends on how much they expect to receive from selling it. If they calculate that the unsecured debtors will receive a very small payment, they might abandon the vehicle for "inconsequential value."
It's worth noting that if the trustee does decide to sell your car, they must pay you the claimed exemption first. So if you claimed the federal bankruptcy exemption of $4,450, the trustee would pay you that amount before distributing any money to your creditors.
What Happens to a Vehicle With Excess Equity in Chapter 13?
When filing for Chapter 13 bankruptcy, vehicle equity is treated differently than in other types of bankruptcy. In this case, a trustee will not seize and sell your assets to pay off creditors. Instead, any equity above the exemption amount must be paid to unsecured creditors.
Let's say your car has a fair market value of $20,000, and you owe $12,000 on your car loan. After deducting the bankruptcy exemption, you have $8,000 in equity. To calculate the minimum monthly payment to unsecured creditors, you would divide the equity by 60 months, resulting in a payment of $134 per month.
If your Chapter 13 payment plan includes a monthly payment of $200 to unsecured creditors, they would receive more than they would in a Chapter 7 bankruptcy case. However, if your proposed payment is less than $134 per month, the court may require you to increase your payment to cover the excess equity in your vehicle.
Chapter 13 bankruptcy not only protects your vehicle's equity but also allows you to keep your vehicle by including your car loan in the payment plan. As long as you remain current on your Chapter 13 payments, your creditor cannot repossess your vehicle. In contrast, in a Chapter 7 case, the creditor can repossess the vehicle for late payments after the bankruptcy case closes or if the court grants the creditor relief from the automatic stay.
Should I File Chapter 7 or Chapter 13 if I Have Excess Equity in My Car?
Are you struggling with debt and considering bankruptcy? The first step is determining which type of bankruptcy is right for you. There are two main types: Chapter 7 and Chapter 13.
If you have insufficient income to repay your unsecured debts, Chapter 7 may be a good option for you. However, you must meet certain income qualifications to file. If your income exceeds the median income for your state or you have disposable income above a specific amount, you may not qualify for a bankruptcy discharge in Chapter 7.
On the other hand, Chapter 13 is designed for wage earners with sufficient income to fund a repayment plan. If you don't have enough income to fund the plan, you won't be able to protect your vehicle in Chapter 13.
To help you compare your bankruptcy options, we offer free Chapter 7 and Chapter 13 calculators on our website. We also have a free debt settlement calculator to help you explore other debt-relief options. Keep in mind that debt payoff planning, debt settlement, or debt management might be a better fit for your situation than bankruptcy.
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