Example: Blue Book Value $16,000, Loan $17,000 = NO EQUITY
Most filers have cars with bank liens on them, and a car is only worth what a trustee can sell it for after the bank lien is satisfied; that’s why almost all cars pass right through the Chapter 7 proceedings. You would have to have a car paid off worth well over $6,000, and you also have a $5,000 homestead exemption available if needed to add to that.
The trustee takes no interest in paid-off cars with little value (you can protect 11k) and lets you keep them.
REAFFIRMATION: The finance company you owe the money to (since it is a secured debt) sends you a new agreement that allows you to keep the car and just continue to make monthly payments until it is paid off. This creates a new obligation and helps rebuild your credit while keeping your vehicle. You also have 45 days to rescind the reaffirmation if you decide not to keep the car.
TIMELY PAYMENTS: Some banks let you keep the car if your payments are on time without any reaffirmation agreement.
TRUSTEE SALE: Trustee sales for cars are timely, costly and of little profit to a trustee. In 23 years we have never seen a trustee sell a client’s car.
BANK ACCOUNTS & TAX REFUNDS: About $5,000 and $500 extra per dependent.
HOUSEHOLD GOODS: $10,000; this is not what you paid for them but what you would get at a fire sale. The Trustee does not want your used furniture.
RETIREMENT ACCOUNTS: 401k and similar fully protected.
PASS THROUGH: Thus with a car and a house that you owe on with little equity, funds in bank accounts of $5,000 or so, and just general personal property and a retirement plan, you will pass easily through a Chapter 7 bankruptcy.