One of the most common concerns when people come in to meet with me deals with what will happen to their car in the event of bankruptcy. They are either afraid that they will lose their car, or they own a really old car and are afraid they will not be able to buy a new(er) and more reliable vehicle. Regarding the second concern; it is possible to get a new car loan after you file bankruptcy. In fact, it is rather common for a person in the middle of a Chapter 13 case to apply for and be awarded a car loan to purchase a new vehicle. However, if the loan is acquired during the bankruptcy, court approval will be required.
The first concern is also dealt with rather easily. In Arizona, an individual is entitled to protect $5,000 equity in one vehicle. So, if you are considering filing bankruptcy and you own a car, the first thing you need to consider is how much money your car is worth versus how much money you owe on it. The value of the car above the price of the loan is considered equity. If you owe $0 and the car is worth less than $5,000.01 then you can keep your car. If you owe $1,000 and the car is worth less than $6,000.01 you can still keep the car because the equity does not exceed $5,000.
An important thing to keep in mind is that if you owe money on your vehicle and you wish to keep it, you will have to keep making your car payments. However, if you owe more money on the vehicle than the value of the car there are some tools available in Chapter 7 and Chapter 13 that could help reduce the principal balance of what you owe. Check back in the next couple days to see how you can qualify to reduce the principal balance of a car loan in Chapter 7 and 13 bankruptcies.
We offer a FREE consultation, where we can discuss issues like what happens to your car during bankruptcy. Call experienced Arizona Bankruptcy Attorney, Benjamin Skinner at JacksonWhite today! (480) 648-8975.