You really need to wait until after your 341 meeting or your first meeting of creditors before you buy a car. Chapter 7 bankruptcy is the type of bankruptcy most people prefer to file because it’s quick and filers aren’t required to pay back any debt. Not everyone qualifies for a Chapter 7 discharge. You’ll qualify if your gross income is lower than your state’s median income. If it’s higher, you’ll still qualify if, after paying allowed monthly debts, you don’t have enough left over to feasibly complete a Chapter 13 repayment plan. Other requirements exist, too. For instance, you won’t be able to use Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending on which type of bankruptcy you filed). And where you can file will depend on how long you’ve lived in the state. The Chapter 7 bankruptcy process takes about four to six months. The filing fees cost $338 (as of December 2020), and it usually requires only one trip to the courthouse. Your bankruptcy begins after you file a petition and other forms with the bankruptcy court in your area. On the forms, you’ll include information about: • property you owned and money you spent during the previous two years, and The Bankruptcy Trustee for Chapter 7 BankruptcyThe court exercises its control through a court-appointed person called a “bankruptcy trustee.” The trustee’s primary duty is to see that your creditors are paid as much as possible of what you owe them. And the more assets the trustee recovers for creditors, the more the trustee is paid. The trustee (or the trustee’s staff) will examine your papers to make sure they are complete and look for non-exempt property to sell for creditors’ benefit. The trustee will also determine whether any financial transactions occurring the year before you filed can be undone to free up assets for creditors. In most Chapter 7 bankruptcy cases, the trustee finds nothing of value to sell. The Creditors MeetingA week or two after you file, you (and all the creditors you list in your bankruptcy papers) will receive a notice that a “creditors meeting” has been scheduled. The bankruptcy trustee runs the meeting and, after swearing you in, will ask you questions about your bankruptcy and the papers you filed. In the vast majority of Chapter 7 bankruptcies, this is the debtor’s only visit to the courthouse. Most creditors’ meetings last less than ten minutes. Most property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, most debtors don’t lose property–but it can happen. If, after the 341 creditors meeting, the trustee determines that you have some nonexempt property (property you can’t protect), you might be required to either surrender the property or provide the trustee with like property or its equivalent value in cash. If the property isn’t worth very much or is cumbersome for the trustee to sell, the trustee will “abandon” it. You’d get to keep it, even though it is nonexempt. Keep in mind that bankruptcy exemptions vary by state. You can find out more in Bankruptcy Exemptions and Your Property. Secured Debts in Chapter 7If you’ve pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses and automobiles. If you’re behind on your payments, the creditor can ask to have the automatic stay lifted to repossess or foreclose on the property. However, if you are current on your payments, you can keep the property and keep making payments as before; unless you have enough equity in the property to justify its sale by the trustee. If a creditor has recorded a lien against your property because of a debt you haven’t paid (for example, because the creditor obtained a court judgment against you), that debt is also secured. You may be able to wipe out the lien in Chapter 7 bankruptcy. The Chapter 7 Bankruptcy DischargeAt the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except: • If you’ve recently completed a bankruptcy, you might be wondering if you can buy a car. In most cases, the answer is yes. If the debts you’ve discharged in your bankruptcy case have freed up enough income to pay in cash or make a loan payment, you might be in luck. Car loan lenders are often willing to let you finance a car after bankruptcy, however, you should expect to pay high-interest rates if you’re taking out the car loan shortly after receiving a bankruptcy discharge. Should You Buy a Car After Bankruptcy With Cash or Credit?The option you choose will depend on your circumstances and resources. You might find that after filing bankruptcy and discharging debts, you have extra disposable income. If you’re able to save up enough cash after your bankruptcy case, using it will likely be the cheaper option. For example, the bankruptcy may have stopped a judgment creditor from garnishing from your paychecks, or you might not have to make credit card payments or debt installment payments any longer, including old car loan lenders. Also, as long as your bankruptcy trustee didn’t claim an interest in your federal or state income tax refunds, you could get extra cash from these refunds. Financing a Car After BankruptcyIf you don’t have enough cash to buy a car, it’s not impossible to get an auto loan despite having filed bankruptcy previously. Lenders will be eager to extend you new credit. Car dealerships may have already mailed you sales cards and letters, inviting you to buy a car with credit. And you are probably eager to re-establish your credit after bankruptcy. Here are some of the pros and cons of taking out a car loan soon after bankruptcy. Getting a loan can help you re-establish credit. It allows you to make timely installment payments on a big-ticket debt, which can help build a positive credit report. Financing may also be your best option if you need a car but don’t have the cash to pay for it. Unfortunately, many lenders—subprime lenders and “buy here, pay here” outfits—will see your bankruptcy as a bad credit mark, and charge you extremely high-interest rates (sometimes as high as 29%). However, bankruptcy doesn’t carry the stigma that it used to 20 or 30 years ago. Even more mainstream lenders and car dealers will not bat an eye over your bankruptcy and are open to doing business with you. You might even be able to finance a new car at a reasonable rate of interest, especially if you have a steady source of adequate income. You should research various finance terms and options that dealers, car loan lenders, banks, and credit unions are willing to offer you in your area. Whether you are using cash or plan to get a car loan, you should wait until after you have received your bankruptcy discharge, or after your bankruptcy case has been dismissed. In a Chapter 7 case, you should get your discharge notice from the bankruptcy clerk of court about 90 days after your 341 meeting of creditors—the one hearing almost all filers must attend. Buying a Car During or After Chapter 13If you are in Chapter 13, the process is significantly different. Chapter 13 is a continuous proceeding that typically takes between three to five years to complete. If you need a new car while you are still in Chapter 13, you will need permission from the bankruptcy court before you can buy one. In most jurisdictions, this means filing a motion with the court. Consult with a bankruptcy attorney to get more information about buying a car in Chapter 13. Once you have received your discharge notice or dismissal, the rule of thumb is simple: The longer you wait to get a new car loan, the better your interest rate will be. However, if you can’t wait, you might still be able to find a reasonable new car loan after researching your options. You don’t lose all of your assets in bankruptcy. You’re allowed to protect (exempt) what you’ll need to get a fresh start after the case ends. Each state has a list of property exemptions for its residents. In most states you can protect at least one car, but the amount of equity you can exempt is limited to a particular dollar amount. If the equity in your car exceeds the exemption amount, what will happen to the car will depend on the chapter you file. The Chapter 7 trustee will sell the car, give you your exemption amount, and use the remaining amount to pay fees and creditors—or force you to pay the nonexempt amount (usually with income made after the bankruptcy filing or money loaned from friends or family). The key problem you’ll want to be aware of is that if you pay more cash for the car than you can protect with an exemption, you’ll likely end up losing the car. In a Chapter 13 case, nonexempt equity is handled a bit differently, but the result is similar. Specifically, the Chapter 13 trustee won’t sell the car; however, you’ll have to pay for the nonexempt portion of the vehicle in the three- to five-year repayment plan. If you don’t have enough income to fund a plan that includes repayment of the nonexempt equity, you’ll have to either: • sell the car yourself (and likely turn over some of the proceeds to the trustee) • let the car go back to the lender, or • find a way other that Chapter 13 bankruptcy to handle your debt problems. Chapter 7 LawyerWhen you need to file a chapter 7 bankruptcy, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
Ascent Law LLC
8833 S. Redwood Road, Suite C West Jordan, Utah 84088 United States Telephone: (801) 676-5506
Ascent Law LLC
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