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NOTICE: THIS DOCUMENT IS INTENDED TO OFFER
GENERAL INFORMATION REGARDING LEGAL ISSUES. IT DOES NOT CONSTITUTE
LEGAL ADVICE. READERS ARE ENCOURAGED TO CONSULT AN ATTORNEY FOR
LEGAL ADVICE IN LIGHT OF THEIR OWN CIRCUMSTANCES. “CAN I KEEP MY HOUSE AND CAR IF I FILE BANKRUPTCY?” For
most people considering bankruptcy, this is the number one question
they need answered. The
answer, fortunately, is “usually.”
There
are several factors that are considered in answering this question.
First of all, we need to take a look at what your equity is
in the vehicle and/or the house.
Equity is the difference between what the item is worth if
you were to sell it minus what, if anything, you owe on the item.
For instance, if your car is worth $5,000 and you have a car
loan against it for $3,000, your equity is $2,000.
More often, we see clients whose loan is what we call an
“upside-down” loan, where they owe more than the property is
actually worth. In this
case, there is no equity.
Where there is little to no equity in a house and/or car and
you are current on your payments, the court will generally allow you
to keep the property and continue paying on the loans, even if a
chapter 7 bankruptcy has been filed.
The reasoning behind this is that even if you sold the car
and/or house, there would be no money made with which to pay
creditors anyway, so your keeping them is not harming your
creditors. It is
important to keep in mind, however, that bankruptcy is a fresh
financial start, and keeping an “upside-down” loan after the
bankruptcy is often not advisable.
A
second situation which is very common is a client who comes in and
they have fallen behind on their payments on the house and/or
vehicle. They may be
facing foreclosure on the home or repossession of the vehicle.
In this situation, one possibility is the filing of a Chapter
13 bankruptcy. This
chapter of the bankruptcy code is designed to allow a debtor the
chance to catch up on the amount they have fallen behind (called
“arrearages”) by stretching out payment of the arrearages
over a three to five year period.
This chapter of bankruptcy is designed for a person who has
regular income, because it does require the person to make the
regular payments that are due under the loan and also a set monthly
amount that goes toward the arrearages. A
third situation involving a vehicle and/or house is the case where a
debtor has built up significant equity in one or both of these
items. Suppose a couple
has a house which is worth $100,000 and they only owe $70,000 on the
mortgage, giving them $30,000 in equity.
They also have $80,000 in credit card debt.
In this case, the courts have determined that it would be
unfair to the creditors to allow this hypothetical couple to keep
their home and completely discharge (wipe out) all of their credit
card debt. In this
scenario, a chapter 7 bankruptcy would require the debtor to sell
the house so that the equity could go to the creditors.
The better option would be for the couple to file a chapter
13 bankruptcy, which would allow them to keep the house, regardless
of the equity. Within
the chapter 13, the couple would agree to pay a set amount of money
each month to go to their creditors.
This ensures that the creditors are getting something,
although it is often only pennies on the dollar of the amount
actually owed. While this article explains some of the basic concepts of how a house or vehicle might be dealt with in bankruptcy, the rules and laws of bankruptcy are very complex and depend on your specific set of circumstances. If you would like to set up a free consultation to discuss your options and which chapter of bankruptcy might be appropriate, please give us a call toll free at (866)994-4892 or locally at (419)994-4892 or click this link to contact us.
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© 2003, Kick & Gilman, LLC |
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