One of the most common questions attorneys at Acker Warren, P.C. are asked by potential client’s is, what happens to my house and car in bankruptcy?
The short answer to this question is that you almost always may keep and continue to pay for you home and car. However, it depends on a multitude of factors, for instance, what state you live in, if you are current on the payments, is it your only house or vehicle, what other property do you own, etc.?
To more thoroughly understand what happens to a home or vehicle in bankruptcy an explanation as to the different types of debts, the different types of assets, and the different chapters of bankruptcy is necessary.
Secured and unsecured debts
Secured debts – These are debts where collateral is given for the loan. In other words, a creditor can come and take back something from you if you do not pay for it. The most common secured debts are those for a home or a vehicle, where the home or vehicle that was purchased serves as the collateral for repayment of the loan.
Unsecured debts – These are debts where collateral is NOT given for the loan. In other words, there is nothing that a creditor can come take back from you if you default on the loan unless they file a lawsuit and receive a judgement lien. The most common forms of unsecured debts are Credit Cards, Medical Bills, Payday Loans, Signature Loans, Etc.
Classification of Assets
Assets are classified in three main ways in both Chapter 13 and Chapter 7 Bankruptcy:
Exempt – Those assets that are exempt from the claims of a Debtor’s creditors under state or federal law. In a bankruptcy context, in Texas, a Debtor may choose Federal or Texas State Exemptions. Property that cannot be taken by your creditors under the State or Federal Exemption Scheme is classified as “Exempt Property.” This means a Debtor will most likely be able to keep this property in either a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, presuming you can continue to make the normal monthly payments on the collateral. In Texas, most homestead property is exempt from the claims of creditors. It is rare that a home that you live in is non-exempt. A vehicle is also almost always exempt from the claims of creditors presuming that you do not own more than one vehicle per driver in your household.
Non-Exempt – Those assets that are NOT exempt from the claims of a Debtor’s creditors under state or federal law. Property that can be taken by your creditors under the State or Federal Exemption Scheme is classified as “Non-Exempt Property.”
- If a Debtor were to file for Chapter 7 it is likely that the property would be required to be turned over to the case trustee who would liquidate the property and use any recovery for repayment of debts in accordance with the Bankruptcy Code.
- If a Debtor were to file for Chapter 13 there are two options.
- Turnover the “non-exempt property” to the case trustee for liquidation.
- Pay into the Chapter 13 plan the Fair Market Value of the property and retain possession of the property.
Surrender – It may not be advantageous to keep a piece of secured property or non-exempt property. Maybe a Debtor owes more than the property is worth on the loan or cannot cover the payments that would be required to keep the property going forward. In this case a Debtor can elect to surrender the property to the Trustee/ Lienholder (Creditor). This can be a very beneficial way to lift the burden of having to pay for something you no longer want or need.
The bankruptcy lawyers at Acker Warren, P.C. can help you determine how to classify your assets and chose the Chapter of Bankruptcy that fits you and your family’s needs best.
What happens to my house and car in Chapter 7 bankruptcy?
A Chapter 7 Bankruptcy is called a liquidation bankruptcy. This is a liquidation of a Debtor’s non-exempt property. A Chapter 7 Bankruptcy, unlike a Chapter 13 Bankruptcy, provides no means for reorganization and repayment of debts. This means that to retain a homestead or a vehicle in a Chapter 7 Bankruptcy it is necessary that the payments on any loans associated with the property are current to the lender and that the property is exempt under either the state or federal exemption scheme. Most often in Texas, a Debtor’s homestead and vehicles, to the extent there is not more than one vehicle per driver in the household, are exempt property and not subject to liquidation. This brings us to the answer to our question, what happens to my house and car in Chapter 7? Presuming any payments are current, and the property is exempt, the answer is nothing happens to a house or vehicle. A debtor retains possession and continues paying off any liens against the property as if no bankruptcy were filed. The caveat here is that the asset and the debt will be listed in your bankruptcy paperwork. A reaffirmation may be required in certain circumstances to retain possession. A Reaffirmation Agreement is an Agreement between the Debtor and Creditor of a Secured Loan that the Debtor will retain possession of the property, continue to make the payments on the loan, and the loan will not be subject to discharge in the bankruptcy. Our team of bankruptcy lawyers at Acker Warren, P.C. can help ensure a Chapter 7 Bankruptcy is right for you and your family ensure you understand the classification and exempt status of all of your property as well as the necessity of any reaffirmation agreement with a creditor prior to filing any case.
What happens to my house and car in Chapter 13 bankruptcy?
A Chapter 13 Bankruptcy is a repayment and reorganization plan. The type of person who normally files for this type of bankruptcy is a Debtor who is behind on a home or vehicle loan, a Debtor who makes to much money to qualify for Chapter 7, or a Debtor who does not want to lose non-exempt property in a Chapter 7 bankruptcy, among other reasons.
Presuming a house or car are exempt and any loans against the property are current then the answer to what happens to my house or car in Bankruptcy is the same as a Chapter 7, nothing happens. A debtor retains possession and continues paying off any liens against the property as if no bankruptcy were filed. The caveat here is that the asset and the debt will be listed in your bankruptcy paperwork.
If a Debtor is behind on a secured loan, for instance a vehicle or home loan a Chapter 13 can be used to cure those arrears and bring the loan current while retaining possession of the property. Upon completion of the Chapter 13 Plan, the Debtor will receive a discharge, the same as in a Chapter 7, have brought any vehicle or home arrears current, and then just continue making the payments on the loan directly to the creditor until the term of the loan has been satisfied.
If a Debtor has property that is not exempt from a Creditors claims and wishes to retain that property, for instance a vacation home or a classic car that is not a daily driver, a Debtor can retain that property in a Chapter 13 by paying in the value of the non-exempt property to the Chapter 13 Plan which would be used to repay unsecured creditors. So even a non exempt home or vehicle can often be retained in a Chapter 13 Bankruptcy, where as that asset would likely have been required to be liquidated by the Trustee in a Chapter 7 Bankruptcy.
Always consult a bankruptcy attorney.
The Bankruptcy Attorneys at Acker Warren, P.C. in Fort Worth, have helped thousands of clients find debt relief, file bankruptcy, stop repossession of vehicles, and stop foreclosures of homes through Debt Settlement/ Negotiation, Chapter 7, Chapter 13, and Chapter 11 Bankruptcy. If you are reading this now, it is because you have decided to take the first step towards peace of mind and financial freedom. You are just a click away from setting an appointment for a free consultation with an attorney at Acker Warren, P.C. we look forward to helping you find Financial Freedom!