In Utah (and this depends entirely on where you file), each person filing a bankruptcy case can exempt $2,500 in value in one vehicle. So, if you own your car outright and it’s worth $2,500 or less (in practice, about $3,000 or less), the car is exempt, the bankruptcy trustee can’t take it, and yes, you can keep your car. This applies to couples filing a joint case, too, so where there are two cars owned outright worth less than the applicable amount, both are safe. And, in the case of a joint filing, each spouse can exempt $2,500 in a jointly-owned vehicle, so a car worth $5,000 or so would be safe.

Now, a Chapter 7 case also affords a perfect opportunity to get out from under a vehicle loan that is upside down (you owe more than the car is reasonably worth), so it’s always a good idea to give careful thought to whether it would be better to surrender that car to the creditor and start over with a less expensive one. Also, in Chapter 7, it is possible to “redeem” a car, by arranging for a new loan in the amount of the current fair market value of the car and asking the court to approve your proposal to pay the old lender that lower amount in exchange for the title, which would then list the new lender as the lienholder. Whether redemption is a good idea depends on the condition of the vehicle and the interest rate and other terms of the new loan.

If the car is not worth more than about $2,500 more than is owed on it, you can also be assured of keeping the car by “reaffirming” the debt (agreeing to be liable on the debt despite having filed bankruptcy) with the current lender. This can, but doesn’t necessarily, involve changing the terms of the loan, but usually the original terms (including amount owed, interest rate, and monthly payment) are maintained.

In Chapter 13, you can keep your car(s) even if there is more than the exemption amount (again, $2,500 in Utah) of equity, but the amount of equity above the exemption amount must be paid to creditors over the term of the Chapter 13 plan. This is usually not a problem, though, as in many cases the excess equity will go to pay your attorney’s fees.

Also in Chapter 13, the effective amount of the monthly car payment can often be substantially reduced by increasing the remaining months on the loan, reducing the interest rate, and (unless the loan was obtained less than 910 days before the bankruptcy case is filed) by “cramming down” the loan by splitting it into a “secured” portion (the current value of the car) which is paid in full, and an “unsecured” portion which is often paid very little.

So, yes, you can usually keep your car if you file for bankruptcy, and you can get rid of it, too, if that’s going to work out better in the long run. As with all of the matters covered on this site, the above barely scratches the surface of all of the possibilities, but hopefully gives you some idea of the basics.

Thanks for your time and interest!

Mark R. Emmett
Utah Bankruptcy Attorney and Advocate Since 1978!

Mark R. Emmett, Esq.
mremmett @ gmail.com
716 East 4500 South N240
Murray, Utah 84107-3619
801-438-4050

Christian Weller, an economist and senior fellow at the liberal think tank, the Center for American Progress, sums up the state of credit card companies in a pithy post at Credit Slips today.

Default rates are surging: “In the fourth quarter of 2008″ writes Weller, “credit card companies charged off — declared as uncollectible — a whopping 6.3 percent of their debt.”

(And the numbers are continuing to get worse — Bloomberg reports that the average “charge-off rate” in January 2009 was 7.1 percent.)

Weller observes that all this is coming after the credit card industry’s successful effort to solve their “deadbeat” problem by getting the laws changed to make it harder for borrowers to declare bankruptcy. And then he delivers a stinging conclusion.

The worst part of this crisis is that it was foreseeable. For decades, credit card companies have layered fees and excessive interest rates on their borrowers. Instead of addressing the consequences of high, complex, poorly understood credit card costs, though, the high default rates were simply explained away by declaring defaulting borrowers as deadbeats. Now that there won’t be another round of bankruptcy reform that could be sold as salvation, credit card lenders will have to come to terms with the fact that their practices were actually detrimental to their own financial health.

But don’t worry too much about your own outstanding balance! Bankruptcy may not be as easy an option as it once was, but the credit card companies are still looking out for us: They’ve created a new Web site for beleaguered borrowers: helpwithmycredit.org.

You won’t find any information on how to declare bankruptcy at helpwithmycredit.org, but you can have loads of fun looking up the phone numbers of accredited credit counseling organizations. One wonders, though, whether the sponsors should take a taste of their own medicine.

Companies participating in Help With My Credit include credit card issuers Bank of America, Capital One, Citi and Discover Card, as well as the payments networks MasterCard and Visa.

Didn’t I hear somewhere that some of those companies were having credit problems of their own? Maybe they need a Web site.

Mark R. Emmett, Esq.
mremmett @ gmail.com
716 East 4500 South N240
Murray, Utah 84107-3619
801-438-4050

No one wins when an otherwise productive, contributing member of society is essentially disabled by their temporary inability to keep up with their debts.

So, Congress has, through the Bankruptcy Code, established procedures to give a fresh start and second chance to those who would might otherwise simply “drop out” of life as it could and should be.  This benefits the bankruptcy debtor and his or her specific creditors and the economy at large, as I’ll explain below.

If you’re unable to pay your debts, what typically happens?:

• Your productivity and creativity (not to mention your mental and physical health and personal relationships) suffer under the stress of fighting off creditors and their collection agencies and lawyers.
• You are consequently unable to give proper attention to your work and personal life.
• Not only are you unable to pay your current debts, you’re almost certainly not able to incur new debt or to purchase new products and services.  The economy stagnates [see, for example, 2008-2009(?)].

CONCLUSION:  You are one sick puppy who can’t find your mom, let alone run with the pack any more.

Enter bankruptcy:  Once relieved of the impossible burden of your past debt load, you’re able to give proper attention and effort to your life again, and your creditors and the overall economy benefit because you’re once again able to be a consumer of their products and services.

If you really need to file, bankruptcy is truly a win-win proposition.

Thanks for your time and interest!

Attorney Mark R. Emmett
Consumer Bankruptcy Lawyer and Advocate Since 1978
Member National Association of Consumer Bankruptcy Attorneys

Mark R. Emmett, Esq.
mremmett @ gmail.com
716 East 4500 South N240
Murray, Utah 84107-3619
801-438-4050

http://www.bankruptcylawnetwork.com/bankruptcy-basics/

Mark R. Emmett, Esq.
mremmett @ gmail.com
716 East 4500 South N240
Murray, Utah 84107-3619
801-438-4050