A bankruptcy filing protects a debtors vehicle in a number of ways. For Debtors that can use Florida exemptions, there is an exemption that provides protection for a limited amount of equity in a vehicle. There may be additional exemption available for a vehicle where the homestead exemption is not used. Creditors may also be required to allow the Debtor to continue with payments under certain conditions. The Debtor may be able to require a car loan creditor to accept less than the full amount owed under certain conditions. The debtor also benefits from the automatic stay that prevents the car creditor from repossessing the debtor’s vehicle during a bankruptcy case without asking the permission of the Court.
Florida Exemption Protection
Most debtors who have lived in Florida for at least two years will qualify for Florida exemptions. (Other debtors will still qualify for some form of exemption, depending on their former residences and length of residence.) Debtors who qualify for Florida exemptions each get a $1000.00 exemption that can be applied to a vehicle in his or her own name. Depending on what other assets a debtor needs to protect from creditors, the debtor may have additional personal property exemption to protect more equity in a vehicle.
Secured Creditor Limits
When a bankruptcy case is filed and a debtor is current with car payments and willing to sign an agreement to continue being responsible for the debt, a reaffirmation agreement, the creditor must allow the debtor to retain and pay for the car. In most instances, the Debtor can retain the car simply by continuing to make the payments if they are current when the case is filed. In a Chapter 13, a debtor has the opportunity to catch up on past-due payments over time (even if the creditor is demanding payment of the past-due amount in a lump sum) and, in some circumstances, require a creditor to take less than the full amount owed if the car is worth less than the amount owed.
Automatic Stay
The automatic stay prevents a creditor from repossessing a vehicle during the bankruptcy case without the permission of the Court. In a Chapter 7 case, many creditors will wait until the case is over or allow some period of time to see if the Debtor is going to make arrangements to keep the car before requesting the permission of the Court to obtain the vehicle.