California Bankruptcy Law: What Happens to Your Car?

When facing financial difficulties, many individuals in California consider filing for bankruptcy as a way to eliminate or reorganize their debts. One common concern during this process is the fate of personal vehicles. Understanding California bankruptcy law and its implications for your car is crucial for anyone considering this option.

In California, there are two main types of bankruptcy filers typically use: Chapter 7 and Chapter 13. Each type of bankruptcy has different implications for car ownership and debt repayment.

Chapter 7 Bankruptcy and Your Car

Chapter 7 bankruptcy allows for the liquidation of non-exempt assets to repay creditors. However, California offers exemptions that protect certain assets from being sold. When it comes to vehicles, California’s motor vehicle exemption allows individuals to keep one car valued at up to $6,250 per person. If the car is used for work or transportation to work, the exemption could extend to $9,325.

If your car is worth more than the exemption limit, you have a few choices. You might choose to pay off the equity difference to keep the vehicle or allow the bankruptcy trustee to sell the car to settle debts. Additionally, if you have a car loan, the treatment of this debt will depend on your filing strategy. You may opt to reaffirm the loan and keep making payments or surrender the vehicle to the lender.

Chapter 13 Bankruptcy and Your Vehicle

Chapter 13 bankruptcy is often more favorable for individuals wishing to keep their cars, as it allows debtors to create a repayment plan over three to five years. This type of bankruptcy is particularly beneficial if you have a car that is worth more than the exemption limits. In this case, you can include the value of your vehicle in your repayment plan and maintain ownership while making manageable payments.

Additionally, if you are behind on car payments, Chapter 13 bankruptcy provides a way to catch up on missed payments over the duration of your repayment plan. This can help you avoid repossession and keep your vehicle, provided you commit to keeping up with future payments.

Leasing vs. Owning

Whether you own or lease a vehicle also influences what happens in bankruptcy. For leased cars, you usually have to decide whether to continue the lease or surrender the vehicle. If you decide to keep a leased car, you’ll need to be current on payments, or the lease may be terminated by the leasing company.

Taking Action and Seeking Help

Ultimately, the options for your vehicle in bankruptcy in California will greatly depend on the type of bankruptcy filed and the specifics of your financial situation. It’s of utmost importance to consult with an experienced bankruptcy attorney before making decisions. They can provide tailored advice and ensure you understand how to protect your car while navigating the bankruptcy process.

Understanding California bankruptcy law and its impact on your car is key to making informed decisions during financial distress. Whether opting for Chapter 7 or Chapter 13, knowing your rights and exemptions can help you maintain ownership of your vehicle while addressing your financial challenges.