Sometimes you just don’t want a vehicle. So the question is, how do you get rid of it and get something else? You’re probably not going to just get rid of the vehicle and walk or take the bus. So there are a variety of situations, and you need good legal advice before you make a false move.
Do you have an old vehicle with a title loan? If you do, the title loan company has a lien on the title. They will want you to pay them before they release the title. If the vehicle doesn’t run, or has been in an accident, you can’t junk it unless you get the title.
Title loan companies seldom will take a vehicle back, rarely even repossess vehicles, because they don’t loan you enough money to make it worthwhile. If you file a bankruptcy, we can provide that you surrender the vehicle, then file a procedure called a motion to exempt and redeem. The court values the vehicle, and all you have to do is pay the value of the vehicle to the title company in which they are required to give you the title. This works very well when you have a junker is only worth $100 salvage value.
A second situation that is very common is that you have a vehicle where you have a loan on it, in the loan payoff is much more than the vehicle is worth, and you don’t want it.
Let’s say you bought a used car, and it’s now worth $8,000. But you have 40 payments of $350 left to pay, or $14,000, the payoff and that depending upon how long you’ve financed it for, might be as much is $11,000 or $12,000.
So, if you wanted to give the vehicle back to the finance company, they would sell it at auction, probably $4,000, and soak you with the auction costs. If you got credit for the $4,000 sales price, then you would end up owing $8,000 on the repossessed vehicle.
Chapter 7 filing can eliminate that $8,000 deficiency. So, Chapter 7 works very well when you owe a lot more than the vehicle is worth. If you want to keep the over-financed vehicle in a Chapter 7, sometimes we can make a deal and obtain a reaffirmation agreement from the financing company.
So, you can either surrender a vehicle that’s over financed and eliminate the deficiency, or possibly we can negotiate a better deal in bankruptcy. But you have to be willing, under Chapter 7, to surrender it if they don’t give you a better deal.
There is another option called 722 Redemption: Similar to the junker example, but if the value of the vehicle is $8,000, you have to come up with the full value of the vehicle or finance it. If you do not come up with the $8,000 for the 722 Redemption, you will probably be financing it at 30% interest which is a terrible deal and you’d be right back where you started.
The third situation involves keeping the vehicle and filing Chapter 13 to pay what the vehicle is worth, if the vehicle is over two and half years old, and even if it’s not 2 ½ years old to pay it at the prime rate +2%. Now if that sounds complicated, it is.
One problem that we are running into is people are financing vehicles for 72 or 84 months, and then coming in to file a Chapter 13, which can only last 60 months. They may even have a 0% interest rate.
So, if you have a long way to pay on a vehicle, and you’ve already got 0% interest, Chapter 13 doesn’t help you. Depending upon your income, it may be wise you can qualify for Chapter 7, to get rid of the monster payment, and get a reasonably priced vehicle with a low payment.
There’s a lot more to vehicles in bankruptcy. Geraci law lawyers have filed over 100,000 bankruptcy cases, many of which involve cars, both Chapter 7 and Chapter 13. If your only debt is a car, you should not be doing a bankruptcy. But if your problem is greater than just the car payment, let’s look at what filing a Chapter 7 or Chapter 13 can do for you, and where the vehicle fits in.