What Happens to Your Car in a Florida Bankruptcy?
Filing for bankruptcy in Florida brings with it many important considerations, particularly regarding your assets, such as your car. Understanding how bankruptcy affects your vehicle can help you make informed decisions during this challenging time.
In Florida, there are two main types of bankruptcy individuals typically file: Chapter 7 and Chapter 13. Each type has different implications for your car.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often referred to as "liquidation bankruptcy." It allows you to discharge most of your unsecured debts, giving you a fresh financial start. However, it can have significant effects on your vehicle based on its value and your equity in it.
Under Florida law, you are entitled to a motor vehicle exemption. As of the latest updates, you can exempt up to $1,000 of equity in a vehicle if you use it primarily for personal use. This means if your car is worth less than or equal to this amount, you can keep it. However, if your car's equity exceeds this exemption limit, the bankruptcy trustee may decide to sell your vehicle to pay creditors.
If you have a car loan, your lender has a security interest in the vehicle, and they retain rights to repossess it if you fall behind on payments. When filing Chapter 7, you have a few options regarding your car:
- Surrender the vehicle: You can allow the lender to repossess the car, which will eliminate your loan obligation.
- Reinstate the loan: If you wish to keep the car, you can reaffirm the debt, committing to continue paying even after the bankruptcy discharge.
- Redeem the vehicle: You can pay the lender the current market value of the car, which may be less than the loan amount.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows you to create a repayment plan to pay back a portion of your debts over a three to five-year period. This form of bankruptcy is more favorable for those who want to keep their vehicle. In Chapter 13, you can keep your car as long as you continue making your loan payments.
This repayment plan allows you to catch up on missed payments and keep the car, even if you owe more than it is worth, thanks to a provision that allows you to "cram down" the value of the vehicle loan. Essentially, if your vehicle's value is less than what you owe, you might be able to reduce your payments to match the vehicle's value.
In addition to protecting your vehicle, Chapter 13 can also help prevent repossession while giving you room to maneuver financially. However, you must stick to the terms of the court-approved repayment plan to avoid losing your car.
Conclusion
Understanding what happens to your car during a bankruptcy filing in Florida is crucial. If you're considering bankruptcy, assess your financial situation, the equity in your car, and which type of bankruptcy is best suited for your needs. It’s advisable to consult with a qualified bankruptcy attorney to navigate the complexities and protect your assets effectively.
By making informed decisions, you can move forward with confidence, knowing what steps to take to safeguard your vehicle during bankruptcy proceedings.