Many people in Louisiana fear losing their car in bankruptcy, but there are ways to protect it.

Filing for bankruptcy can be stressful, and one of the biggest worries is whether you’ll be able to keep your car. In Louisiana, keeping your vehicle depends on the type of bankruptcy you file, how much equity you have in the car, and whether you can keep up with payments. The good news? There are ways to protect your car during bankruptcy. A Bankruptcy lawyer in Monroe, Louisiana can help you understand your options. 

Quick Summary:

  • If your car equity is $7,500 or less, you can protect it under Louisiana law and keep your vehicle in Chapter 7 bankruptcy. If your equity exceeds this amount, the trustee may sell the car, but you’ll still receive the exempted portion.
  • Chapter 13  repayment plan allows you to catch up on missed payments over 3-5 years, letting you keep your car. It also provides options to lower interest rates or restructure your loan for more manageable payments.
  • Reaffirmation means continuing loan payments so your car won’t be part of bankruptcy, but missing payments risks repossession. Redemption lets you pay the current value of your car instead of what you owe, often reducing your debt.
  • A Bankruptcy lawyer in Monroe, Louisiana can help you go through the legal process, ensuring you take the right steps to protect your car. They provide guidance on exemptions, repayment plans, and lender negotiations to secure your financial future.

Understanding Bankruptcy and Your Car

Bankruptcy is a legal process that helps people or businesses manage overwhelming debt, either by eliminating it or creating a structured repayment plan. There are two common types of personal bankruptcy, Chapter 7 and Chapter 13, and each one works differently when it comes to keeping your car. Let’s go over them

Chapter 7 Bankruptcy (Liquidation)

When you file for Chapter 7 bankruptcy, the court may require you to sell some of your property to pay off debts. However, Louisiana law allows you to protect up to $7,500 in equity for one motor vehicle. Equity is the difference between your car’s market value and the amount you still owe on it. For example, if your car is worth $10,000 and you owe $5,000, your equity is $5,000. Since $5,000 is under the exemption limit, you can keep your car.

If your equity exceeds $7,500, the bankruptcy trustee may sell the car, give you the exempted portion, and use the rest to pay creditors. If you’re still making car payments, you must stay current on them to retain your vehicle.

Chapter 13 Bankruptcy (Repayment Plan)

Unlike Chapter 7, Chapter 13 bankruptcy does not require you to sell assets. Instead, you create a court-approved repayment plan lasting 3-5 years. This allows you to catch up on missed payments while keeping your car. If you’re behind on payments, Chapter 13 helps spread out what you owe over time, making it more manageable.

Additionally, if your car loan has high interest rates or you owe more than the car’s actual value, you may be able to reduce your loan balance or lower your interest rate as part of the repayment plan, making payments more affordable.

Ways You Can Keep Your Car

Losing your car during bankruptcy can be a major concern, but there are several ways to protect it. Here are your options that allow you to keep your vehicle while managing your debt.

Using Louisiana’s Motor Vehicle Exemption

Louisiana law allows you to protect up to $7,500 in equity for one car used by you or your family. To determine if your car qualifies for this exemption, start by checking its current market value. Subtract the amount you owe on it to find the equity. If the equity is under $7,500, you can keep your car. However, if the equity exceeds the limit, the bankruptcy trustee may sell the car, give you the exempted portion ($7,500), and use the rest to pay creditors.

Keeping Your Car in Chapter 13 Bankruptcy

Chapter 13 bankruptcy can be a better option than Chapter 7 if you’re behind on car payments. With this plan, your car loan can be restructured into a 3-5 year repayment plan, allowing you to catch up on missed payments. If your car loan has high interest, you might be able to lower it through the repayment plan, making payments more affordable.

Additionally, if your car is worth less than what you owe, you might qualify for a “cramdown” — this reduces the loan balance to the car’s actual value, helping you eliminate unnecessary debt.

Reaffirming Your Car Loan

If you want to keep making payments on your car loan, you may be able to sign a reaffirmation agreement with your lender. This means you agree to continue paying the loan, and your car won’t be included in your bankruptcy discharge. However, if you miss payments, the lender can repossess the car and sue you for the remaining balance.

Before reaffirming your loan, make sure you can realistically afford the payments. If you’re struggling, talk to your lender about lowering the interest rate or offering better terms. Also, ensure the reaffirmation agreement is properly filed with the court to avoid complications.

Redeeming Your Car in Chapter 7

If you owe more than your car is worth, you might qualify for redemption, which allows you to buy your car back for its current market value, often much less than what you owe. For example, if you owe $10,000 on a car worth $5,000, you could pay $5,000 and clear the rest of the debt. The catch is that you need to pay the full amount upfront, which might require a loan.

To pursue redemption, check your car’s market value using resources like Kelley Blue Book, and consult your bankruptcy attorney about filing for redemption. If you can come up with the money, this option could save you thousands in loan payments.

Avoiding Car Repossession During Bankruptcy

If you’re behind on payments, your lender may try to repossess your car before or during bankruptcy. This can be stressful, but there are steps you can take to stop it from happening.

  • File for bankruptcy quickly: The moment you file for bankruptcy, an automatic stay is put in place. This means your lender must stop any attempts to take your car. If they try to repossess it after you’ve filed, they could face legal consequences.
  • Keep making payments: Even if you’ve filed for bankruptcy, you should still make payments on your car loan if you can. Staying current on your payments shows your lender that you are serious about keeping your car and avoiding repossession.
  • Talk to your lender: Some lenders are willing to work with you instead of taking your car away. They may offer options like refinancing, adjusting your loan terms, or setting up a repayment plan that makes it easier for you to catch up on missed payments.

Why You Should Consult a Bankruptcy Lawyer

Filing for bankruptcy can be complicated, and making the right choices about your car can be overwhelming. A bankruptcy lawyer can help you understand your rights and options, making sure you don’t lose your vehicle when you don’t have to.

  • They Know the Laws. Bankruptcy laws vary by state, and in Louisiana, specific rules apply to protecting your car. A lawyer can explain how exemptions work and what steps you should take to keep your vehicle.
  • They Can Help You Choose the Best Option. Whether you should file Chapter 7 or Chapter 13 depends on your financial situation. A lawyer will evaluate your case and help you decide which path is best for keeping your car.
  • They Can Negotiate with Lenders. If you are behind on payments, your lender may be willing to work with you to adjust loan terms. A lawyer can negotiate on your behalf to lower payments or interest rates, giving you a better chance of keeping your car.
  • They Protect You from Mistakes. Bankruptcy paperwork is detailed, and small errors can cause delays or problems with your case. A lawyer makes sure everything is filed correctly so you don’t risk unnecessary setbacks.

Before making any major decisions, consulting a bankruptcy lawyer Monroe Louisiana can help you go through the process and ensure you take the right steps. With proper guidance, you can work toward a fresh start while keeping the vehicle you rely on every day.

Get Legal Help from E. Orum Young Law – Bankruptcy Lawyer Monroe, Louisiana

Bankruptcy can be overwhelming, but losing your car doesn’t have to be part of the process. With the right guidance, it’s possible to keep your vehicle and secure a fresh financial start. If you’re facing bankruptcy and concerned about keeping your car, it’s essential to seek professional legal advice. 

At E. Orum Young Law, our experienced bankruptcy attorneys in Monroe, Louisiana, can help you understand your options, protect your assets, and simplify your financial troubles. We offer a free case review to help you determine the best course of action. Contact us today to get started!