What Happens to Your Car During Bankruptcy in Tennessee?
Filing for bankruptcy is a significant decision that affects many aspects of your financial life, including your car. If you're a resident of Tennessee and are considering bankruptcy, understanding what happens to your car during the process is crucial. This article delves into the implications of bankruptcy on your vehicle, outlining your options and potential outcomes.
When you file for bankruptcy in Tennessee, you have two primary options: Chapter 7 bankruptcy and Chapter 13 bankruptcy. Each has distinct implications for your car.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, known as liquidation bankruptcy, your non-exempt assets may be sold off to pay creditors. Tennessee has specific exemptions that allow you to keep certain property, including your vehicle, under certain conditions.
In Tennessee, the car exemption allows you to protect up to $7,500 in equity in your vehicle. If your car's value is less than this amount, you can typically keep it without any issues. However, if your car is worth more, the bankruptcy trustee could sell your car to pay off creditors, unless you can exempt its value.
Moreover, if you are current on your car payments, you might also be able to reaffirm the debt. Reaffirmation means you agree to continue making payments, allowing you to keep the vehicle. Before opting for a reaffirmation agreement, it's essential to consider your long-term financial situation, as it commits you to the debt despite the bankruptcy discharge.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a reorganization plan that allows you to keep your assets while repaying your debts over three to five years. In this case, you can retain your vehicle as long as you continue making payments under your repayment plan.
One significant advantage of Chapter 13 is that if you owe more on the car than its current market value, you may be able to reduce the amount you must pay on your car loan. This means you could potentially pay off the car at its current value instead of the amount owed, which can lead to substantial savings.
In addition, Chapter 13 allows you to catch up on any missed payments over the life of the repayment plan, which can help you avoid repossession.
What Happens to Your Car Loan?
If you have a car loan and you file for bankruptcy, how that loan is handled depends on your chapter of bankruptcy and your current situation. In Chapter 7, if you cannot afford to keep making payments, you may decide to surrender the car to the lender, which will release you from the loan obligation. However, this will also result in the loss of the vehicle.
In Chapter 13, since you have the opportunity to keep your car, the lender is bound by your repayment plan. You must continue making monthly payments, but catching up on missed payments can be part of your plan.
Conclusion
Understanding the impact of bankruptcy on your vehicle in Tennessee is essential for making informed decisions. Whether you choose Chapter 7 or Chapter 13 bankruptcy, knowing your vehicle's equity and your financial situation will help guide your choice to protect your car during this challenging time.
Consulting with a qualified bankruptcy attorney in Tennessee can provide you with personalized advice tailored to your unique circumstances, ensuring that you understand all your options regarding your car and your financial future.