Can You File for Bankruptcy and Keep Your Car in NC?

Repossession prevention NC New bern

Filing for Bankruptcy In North Carolina

Filing for bankruptcy can be a daunting process, but it can also provide a fresh start for those struggling with overwhelming debt. One of the primary concerns for individuals considering bankruptcy is the potential loss of valuable assets, including their vehicles. This blog aims to guide you through the process of filing for bankruptcy while retaining your car, providing valuable information and actionable steps to protect your assets.

Disclaimer: This content is for informational purposes only and does not constitute legal advice.

Understanding Bankruptcy: Chapter 7 vs. Chapter 13

When considering bankruptcy, it’s crucial to understand the two main types available to individuals: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy: Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” involves the sale of non-exempt assets to pay off creditors. This process offers a quick discharge of most debts, typically within a few months. However, eligibility depends on passing the means test, which compares your income to the median income in North Carolina.

Chapter 13 Bankruptcy: On the other hand, Chapter 13 bankruptcy, known as “reorganization bankruptcy,” allows you to keep your assets, including your car, while repaying debts over a 3-5 year period. This type of bankruptcy requires a regular income to support the repayment plan and is suitable for those who do not qualify for Chapter 7 or have significant non-exempt assets.

Understanding these differences is vital as they directly impact how you can retain your car during bankruptcy.

Protecting Your Car in Bankruptcy

What Are Bankruptcy Exemptions? Exemptions are specific laws that protect certain assets from being sold during bankruptcy. Both federal and state exemptions are available, and you can choose which set to use based on your circumstances.

North Carolina’s Exemptions for Vehicles: In North Carolina, you can exempt up to $3,500 of equity in one motor vehicle under state law. If the equity in your car exceeds this amount, the excess may need to be addressed through other means, such as Chapter 13 repayment plans.

Federal vs. State Exemptions: Which One to Choose? Federal exemptions may offer different protections that could be more beneficial depending on your overall asset portfolio. Consulting with a bankruptcy attorney can help you decide which set of exemptions is most advantageous for your situation.

Automatic Stay: How It Can Prevents Repossession

What is an Automatic Stay?: An automatic stay is a powerful provision in bankruptcy law that halts most collection activities, including repossession of vehicles. It goes into effect immediately upon filing for bankruptcy.

How the Automatic Stay Applies to Car Loans: Creditors must cease all repossession efforts once the automatic stay is in place. This temporary relief provides you with the breathing room needed to address your financial situation.

Steps to Take If Your Car Is at Risk of Repossession:

  • File for bankruptcy promptly to activate the automatic stay.
  • Work with an attorney to inform creditors of your bankruptcy filing and the stay.
  • Explore options such as reaffirmation or redemption to secure your vehicle.

Strategies for Keeping Your Car in Chapter 7 Bankruptcy

Reaffirmation Agreements: Pros and Cons: A reaffirmation agreement is a legal document where you agree to continue paying your car loan despite the bankruptcy. The pros of this approach include allowing you to keep your car and potentially rebuild your credit. However, the cons are that you remain liable for the debt and missed payments can lead to repossession.

Redemption Option: How to Buy Back Your Car: This involves paying the current market value of the car in a lump sum to the lender, which can be beneficial if your car is worth less than the loan balance. However, it requires the ability to secure a lump sum payment, possibly through new financing.

Exempting Your Car: Maximizing Your Exemptions: Use the available vehicle exemption to protect as much equity as possible. Consider using wildcard exemptions for any remaining equity.

Strategies for Keeping Your Car in Chapter 13 Bankruptcy

How Chapter 13 Repayment Plans Work: Chapter 13 allows you to restructure your debts and make affordable payments over 3-5 years. Your car loan can be included in the repayment plan, spreading out the payments.

Cramdown: Reducing Your Car Loan Balance: If your car loan balance exceeds the car’s value and the loan was taken more than 910 days before filing, you may be able to reduce the balance to the car’s current value. This can significantly lower your monthly payments and overall debt.

The Importance of Timely Payments in Chapter 13: Adhering to the repayment plan is crucial to retaining your vehicle. Missing payments can lead to the dismissal of your bankruptcy case and potential repossession.

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Common Mistakes to Avoid When Filing for Bankruptcy

Overlooked Exemptions: Failing to use the correct exemptions can result in unnecessary asset loss.

Mismanagement of Reaffirmation Agreements: Not fully understanding the implications can lead to future financial difficulties.

Incomplete Documentation and Its Consequences: Ensure all paperwork is accurate and complete to avoid delays and complications.

Seeking Legal Assistance: The Role of a Bankruptcy Lawyer

Benefits of Hiring a Bankruptcy Attorney: Advice tailored to your specific situation and assistance with navigating complex legal procedures.

How a Lawyer Can Help Protect Your Assets: Strategic use of exemptions and legal provisions, and negotiation with creditors to safeguard your interests.

Contact Information for Legal Consultation: Our firm specializes in bankruptcy law in North Carolina and is here to help. Reach out for a free consultation to explore your options.

Get Help with Your Bankruptcy Case

Contact us Stubbs & Perdue to Book a Free Bankruptcy Consultation  or call us at to schedule a consultation. Our experienced North Carolina Board Certified Bankruptcy attorneys are ready to assist you with your bankruptcy needs. No need to come in office, zoom or over call.

Disclaimer: No Guarantee of Results. Each case is unique, and past results do not guarantee future outcomes.


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disclaimer: We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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