Bankruptcy can often be seen as a final option for those grappling with overwhelming debt. The laws governing bankruptcy vary by state, and Florida has its own unique set of rules and regulations about what property can be retained during the bankruptcy process. If you’re contemplating filing for bankruptcy in Florida, a crucial concern is whether you’ll be able to keep key assets such as your car. The answer is not straightforward and is influenced by several factors, including the type of bankruptcy filed, your car’s value, and the exemptions you’re eligible to claim.
Understanding Bankruptcy: Chapter 7 vs. Chapter 13
The type of bankruptcy you file – Chapter 7 or Chapter 13 – plays a significant role in determining whether you can retain your car during the bankruptcy process in Florida.
Chapter 7 bankruptcy, also known as liquidation bankruptcy, necessitates the selling off of your non-exempt assets to repay creditors. Conversely, Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows for the restructuring of your debts into a more manageable payment plan over three to five years, enabling you to keep your assets.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, you may risk losing your car if its value surpasses the state’s vehicle exemption limit and it isn’t covered by any other exemptions. However, if your car’s equity (the car’s market value minus any outstanding loan or lease payments) falls under the Florida vehicle exemption, you might be able to keep your car.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy increases the likelihood of you keeping your car since payments are spread over time. Your car payments may be incorporated into your restructured payment plan, and maintaining these payments will allow you to retain your car.
Florida’s Motor Vehicle Exemption
One of the critical factors to consider is Florida’s motor vehicle exemption. As of the most recent update, the exemption is $1,000. In a Chapter 7 bankruptcy, this allows you to safeguard up to $1,000 of equity in your car or other vehicles. If your car’s value is $1,000 or less, it’s generally safe from liquidation.
If your car’s value surpasses the exemption limit, and you’re still making payments, the trustee may not sell the vehicle if the equity isn’t enough to repay your loan and also provide a substantial return to your unsecured creditors.
On the other hand, if your car is paid off and its value substantially exceeds the exemption, the trustee is more likely to sell the car, repay you the exemption amount, and use the rest to pay off your debts.
Florida’s Wildcard Exemption
Florida law also offers a wildcard exemption that can be applied to any personal property, including vehicles. The wildcard exemption is $4,000, but this is only applicable if you don’t use the homestead exemption. This wildcard exemption can be particularly helpful if your car’s value goes beyond the $1,000 motor vehicle exemption.
For example, if your car’s equity is $2,000 and you’re not utilizing the homestead exemption, you can use $1,000 from the motor vehicle exemption and $1,000 from the wildcard exemption to fully exempt your car.
The Role of Reaffirmation Agreements
A reaffirmation agreement is another potential way to keep your car during a Chapter 7 bankruptcy. In this agreement, you and your car loan lender concur that you will continue making payments on your car loan, allowing you to keep the car. However, this means you’re opting out of having the car loan discharged in the bankruptcy, which could lead to financial hardship if you default on your payments in the future.
Final Word
The question of whether you can keep your car in a Florida bankruptcy depends on your specific circumstances, including the type of bankruptcy filed, the value of your car, and the exemptions you can claim. Given the complexity of this process and the many factors to consider, it’s recommended that you consult with a qualified bankruptcy attorney who is familiar with Florida’s specific bankruptcy laws and can guide you through the process.
While bankruptcy can provide a fresh start, it’s a decision that should not be taken lightly. It can have long-lasting effects on your credit and financial situation, so it’s essential to thoroughly research and consider all options before making a decision.
Disclaimer: The information presented in this article and across this website is presented for general educational purposes only. Although this article discusses legal issues, it is not legal advice. Please be aware that laws and the content of any linked websites or pages might have evolved since the publication of this article, and as such, we cannot guarantee the ongoing accuracy of any presented information. Utilizing this article does not establish an attorney-client relationship.
