Keeping Cars in Bankruptcy

Is keeping cars in bankruptcy possible while still discharging credit card debt?  We want to file a chapter 7 bankruptcy.  How do we tell if we make too much money to even file a chapter 7?.

Whether or not bankruptcy filers can keep any individual piece of property depends on many factors, including how much property is owned and what exemptions are available to cover the property.

Many sources in print and on the internet exist on the subject of property in bankruptcy.  So the answer to your question requires a good summary.  In 2005 Congress amended the bankruptcy laws, imposing a “means test”.  This requires you to add up all of your household’s monthly income over the 6 calendar months prior to the date of filing.  You qualify to file under Chapter 7 only if this number comes in below the census bureau’s statistics for median family income in your state.

If resulting income exceeds the median, you have a second chance to work the numbers through the full means test.  The calculations are spelled out on bankruptcy form B22A.  While this appears to be simple math, using some numbers supplied by the IRS, it can get complicated.  It’s a good idea to retain an experienced bankruptcy attorney who understands the process to do this for you.  Here’s a link to an article on calculating the means test:  Means Test Numbers.

If your income still surpasses the applicable median family income, then you would likely qualify for a chapter 13, which requires that you pay a certain percentage of your debts in a chapter 13 payment plan over the next 3 to 5 years.

So, can I keep my car if I file Chapter 7 Bankruptcy?

The next question is whether assets, including any equity value in your real estate, car(s) or other property is protected by exemptions available under your state law or federal exemptions.  The basic concept behind bankruptcy exemptions allows those filing bankruptcy to keep modest essential possessions.

Federal law controls bankruptcy.  At the same time each state sets its own law on bankruptcy exemptions and can even decide whether those filing can even use the federal exemptions.

People filing bankruptcy in Massachusetts and New Hampshire face a choice of claiming either state or federal exemptions.  Bankruptcy schedules provide a selection before the person files, claiming exempt property.  If the car’s value, the fair private party sale value, minus the vehicle loan, falls under the exemption, then the car is safe.  Bankruptcy law allows the retention of a reasonable vehicle, if it passes this test, because the focus is on giving a fresh start.  Besides, everyone needs a car.

Finally, bankruptcy requires review of one’s entire financial situation including all debt, income, assets and exemptions.  Blog articles are great for spelling out the basics.  But, before actually filing it is highly recommend that you seek representation from an experienced bankruptcy attorney in your jurisdiction.

“Seeking the advice of a qualified lawyer is strongly recommended because bankruptcy has long-term financial and legal consequences.”

U.S. Courts.gov

It is possible to “do it yourself” in filing a bankruptcy.  At the same time the matrix of required forms, the precision required in calculating the means test, exemptions and other factors make hiring a bankruptcy attorney highly advisable.

What do I need to do before filing bankruptcy?

To some extent the prebankruptcy preparation depends on your situation.  But in most or all cases, preparation includes the following items:

• Credit Counselling Certificate: Confirming your completion in the mandatory pre-filing credit counselling class.
• Tax Returns: Bankruptcy law requires you have your tax returns for the last two years that you filed.
• Bank Statements: For the last 6 months.
• Cover Sheets from Retirement Accounts: Trustees need to see that these, pensions, life insurance, financial accounts and others do not include “cash out” options, or that they are set up correctly under federal law.
• Photo ID: A government-issued photo ID is required when you take part in the creditors meeting, approximately 30 days after filing.  Might as well get it ready in advance.  No driver’s license?  A passport or state-issued ID works.
• Social Security Card: Again, needed for the creditors meeting. If you can’t get a duplicate in time for the creditors meeting a W-2 or other form with your name and complete social security number work as long as the document was issued by someone other than yourself.
• Pay Stubs: for the six-month period prior to the date of filing.  Needed to calculate the “means test”.
• All Recent Credit Card Statements: Include all of the pesky creditors including medical debt, private loans and other amounts you owe.

Once all of this information comes together, you have information for the schedules, statements and other documents making up the bankruptcy petition. Bankruptcy law requires full disclosure of all assets, income and debt, so there are no shortcuts.

Bankruptcy Information

My office handles consumer bankruptcy in New Hampshire and Massachusetts.  This includes Chapter 7 and Chapter 13 bankruptcy filings.

The Law Offices of Andrew D. Myers present this information for informational purposes only.  This information is not intended as, and does not comprise legal advice.  Legal advice can only be received through an actual consultation with an attorney.  The lawyer you consult with must be experienced in the practice area in which your concern lies. Any attorney with whom you speak must be licensed in your jurisdiction.

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