If you’re asking can I file bankruptcy and keep my car, the answer is absolutely! And that’s a good thing to know in these trying times. Because of the coronavirus pandemic, auto loan delinquency rates recently hit an all-time high. Meanwhile, thanks to some recent Supreme Court decisions, consumer protections in the Fair Debt Collection Practices Act recently hit an all-time low. In other words, vehicle owners have more critical debt, and lenders have more ways to collect it.

These methods usually include repossession. Legally, most lenders can repossess most vehicles after just one missed payment. Additionally, many lenders use remote devices to disable vehicle ignitions if the owner is only a day or two late. Some lenders apply grace periods and other relief measures. But since the current legal and regulatory environment is so pro-debt collector, most people should not depend on the bank’s largesse.

Once an Athens bankruptcy lawyer files a voluntary petition, creditors cannot take adverse actions, such as vehicle repossession or ignition shut off. Consumer bankruptcy does not only keep your car in your driveway in the short term. This federal debt relief program also makes your vehicle more affordable in the long term. So if you’re asking, can I file bankruptcy and keep my car, the answer is yes.

How the Automatic Stay Protects You From Debt Collectors in GA

When you file bankruptcy, the Automatic Stay is what stops creditors from collecting money and repossessing property from you. Generally, Athens bankruptcy attorneys can stop repossession rather easily. The Automatic Stay is usually, well, automatic, unless there are extreme circumstances, like owner fraud, a direct threat to the collateral (e.g. Intent to drive the car off a cliff), or the debtor has filed bankruptcy within the past six months.

During 2020, the vehicle loan delinquency rate has gone up more than the credit card delinquency rate. This difference suggests that consumers believe they can skip a few car payments and not face any serious consequences.

Vehicle repossession is one of the worst hits a credit report can take. Repossession not only means the owner fell behind on payments. It also means the owner simply quit instead of trying to remedy the situation. Bankruptcy looks better than repossession to most lenders. If the debtor filed bankruptcy, especially a Chapter 13, at least the debtor took action as opposed to burying his/her head in the sand.

Section 362 of the Bankruptcy Code (the Automatic Stay) not only prohibits vehicle repossession. It also stops other other adverse creditor actions, such as foreclosure, wage garnishment, and heavy-handed collections efforts.

It is usually very difficult to undo a repossession, even if the bank was clearly in the wrong. Successful wrongful repossession claims usually require a showing of lender malice, or at least extreme lender recklessness. These items are not easy to prove, unless the bank outright admits culpability or there is another “smoking gun.” 

So, if you are more than a month behind on payments, you should at least consider filing consumer bankruptcy. Since most people rely intensely on their vehicles, it’s much better to be safe than sorry.

Asset Exemption in Georgia

As mentioned, the Automatic Stay is not absolute. The bank has a posse of lawyers who look for loopholes and other ways to bypass the Stay and repossess your family’s car.

Even if banks get around the stay, they usually cannot repossess vehicles. Georgia law includes a $5,000 motor vehicle exemption.

Section 44-13-100(a)(3) applies to the vehicle’s equity, not to its current fair market value or original sales price. Most new vehicle owners have almost no equity in their cars. Most used vehicles have almost no fair market value. So, the $5,000 exemption is often enough to include more than one motor vehicle, especially if the debtor is married and the exemption amount doubles. If necessary, debtors can also apply part or all of the wildcard exemption to their vehicles.

This exemption also prevents the trustee (person who oversees the bankruptcy for the judge) from seizing your vehicle and selling it to pay off creditors. Technically, all nonexempt property belongs to the bankruptcy court after debtors file their voluntary Chapter 7 petitions. As a result, the trustee can liquidate that property. Chapter 13 debtors have the option to retain nonexempt property, if they essentially buy it back from the trustee.

Georgia’s generous property exemptions don’t stop with a motor vehicle and wildcard exemption. They also apply to most of the other assets which families possess, such as:

• House: State law protects up to $43,000 of home equity. The same equity principles discussed above regarding motor vehicles also apply to your home. Unless the owner has paid more than half the loan, the owner probably has little equity in the home. Furthermore, with houses as well as cars, there’s often a difference between the fair market value and the as-is cash value. More on that below.
• Retirement Accounts: 401(k)s, IRAs, and other tax-deferred defined contribution retirement accounts are normally 100 percent exempt, regardless of the value. So are most defined benefit plans, like pension plans. This protection usually applies to other tax-deferred savings accounts as well, such as prepaid college tuition accounts.
• Personal Property: Like all other items, things like furniture, jewelry, electronics, and clothes are subject to the as-is cash value rule. This amount is usually a fraction of the fair market value. A home investor might offer pennies on the dollar for a no-inspection cash purchase, and Lisa’s $2,000 TV might fetch $200, at most, at a garage sale.
• Government Benefits: This exemption is a big one for many families. Social Security, workers’ compensation, VA disability, and unemployment compensation payments are all exempt under state law. This exemption also applies to Family Support Obligations, such as child support or alimony payments.

The federal nonbankruptcy exemptions are also available in Georgia. A 75 percent exemption for current but unpaid wages is probably the biggest item on this list.965

Delinquency Repayment in a Chapter 13 Bankruptcy

Bankruptcy stops immediate repossession. Fortunately, as mentioned above, a Chapter 13 provides more than immediate relief. The average new car payment is almost $600 a month. Most families live hand to mouth. So, it’s very difficult to make two, three, or four payments at once to bring a delinquent loan current.

Chapter 13 gives your family options in this area. Most people chose to roll delinquent vehicle payments into a monthly debt consolidation payment. These payments usually last five years. So, instead of paying two or three thousand dollars to bring a delinquent loan current, the family pays about $50 a month.

The debt consolidation payment in a Chapter 13 also takes care of other allowed claims, such as home mortgage delinquency, an Athens bankruptcy lawyer’s fees, and other administrative costs.

In most cases, the Automatic Stay remains in effect for the entire repayment period. The limited exceptions were mentioned above. As a result, creditors cannot pressure debtors to pay more money or pay it faster. Section 362 of the Bankruptcy Code does not only prohibit adverse action. It also prevents creditors from contacting debtors.

Reaffirmation in a Georgia Chapter 7 Bankruptcy

A Chapter 7 legally cancels all creditor/debtor agreements. So, if a debtor chooses to reaffirm (voluntarily repay) a vehicle loan, as is usually the case, the entire agreement must be renegotiated.

Many times, debtors treat reaffirmation as a formality. The bank sends a contract and they sign it without giving it a second thought. These debtors miss an important opportunity.

Your Athens bankruptcy lawyer knows how to take advantage of legal loopholes. An attorney is also a good negotiator. As a result, the bank might agree to lower the interest rate or write off part of the loan. The bank knows that, if it does not make a favorable deal, the owner will walk away from the debt, and it will receive practically nothing.

Chapter 7 debtors may also reaffirm other obligations. Most people decide to reaffirm executory contracts, like internet and cell phone provider agreements. Many people also choose to reaffirm certain unsecured debts. Perhaps they want to pay a medical bill to stay in a doctor’s good graces or retain a credit card to build their credit after bankruptcy.

Reaffirmation, especially credit card reaffirmation, is sometimes a good idea. Your credit score captures your ability to responsibly manage credit, not your ability to pay everything in cash. Using the card every month and paying the balance at least mostly in full every month could raise your score by a dozen or more points a month. That increase adds up quickly.

Reaffirmation agreements have some pitfalls as well. Qualifying for Chapter 7 is a good example. If the debtor reaffirms multiple unsecured debts, many trustees question the debtor’s need to file Chapter 7. Most people don’t want this additional scrutiny. So, before you consider signing a reaffirmation agreement, or declare your intent to reaffirm, speak to your Athens bankruptcy lawyer.

Examples of How Filing Bankruptcy in Georgia Can Protect Your Property

These options vary, usually depending on the type of bankruptcy. In a Chapter 13, an Athens bankruptcy attorney can use the cram-down option to eliminate much of the loan balance.

Assume Fred paid $20,000 for a new car in 2020. He lost his job because of the pandemic and fell behind on payments. When he files bankruptcy in 2021, he still owes $15,000 on the loan, but the vehicle’s fair market value is only $10,000. If Fred pays an additional $10,000 over five years, he could own the car free and clear, saving him thousands of dollars.

The best interests of creditors rule often comes into play as well. As mentioned, trustees can seize nonexempt property in a Chapter 7 and liquidate it. However, this action must be in the best interest of the creditors. 

Let’s change the above example a bit. Now assume Fred filed bankruptcy because he owed money to twenty-five creditors. There’s an extra used car in his garage, which is worth $2,000, that he cannot protect under the aforementioned exemptions. The trustee makes plans to seize and sell it.

The car needs about $500 in repairs. Furthermore, sales costs, such as an auction fee, would be about another $500. The trustee is responsible for all these costs.

At best, the sale would net the creditors about $40 each. So, a sale might be more trouble than it’s worth, especially since there’s a risk the auction price will be less than the Blue Book value. Therefore, an Athens bankruptcy attorney could argue that a liquidation would not be in the creditors’ best interests. A liquidation would only punish Fred, and that’s not what bankruptcy is supposed to do.

Connect With an Experienced Bankruptcy Lawyer in Athens, GA

Are you wondering, Can I file bankruptcy and keep my car? In almost all situations, you can file bankruptcy and keep your car. For a free consultation with an experienced Athens bankruptcy lawyer, contact Morgan & Morgan, Attorneys at Law in Clarke County, Georgia. Convenient payment plans are available.