CAN YOU KEEP YOUR CAR OR HOUSE IN BANKRUTPCY?


BANKRUPTCY 06/26/12

KEEPING YOUR HOUSE AND CAR AFTER A CHAPTER SEVEN BANKRUPTCY.

People often ask whether they can keep their home and car in a Chapter Seven Bankruptcy. The answer is yes but you will still be liable for the debt.

In a Chapter Seven Bankruptcy the debtor turns over all assets that are non- exempt. By category of assets various values are exempt from being taken by a bankruptcy trustee. For instance you can keep up to $3,400 in net value in your car and over $21,000 in net value in your home. In the rare instance where a trustee takes your property it is sold with the proceeds going to your creditors. Most people in a Chapter seven bankruptcy keep their property. If your property has a deed with lien like your house or a title with lien like your car you are forgiven the debt but have to give back the car or home unless you reaffirm the debt.

So even in bankruptcy you still have obligations to the holders of the notes on your car or home. Why?

When you take out a mortgage on your home you are doing two things.
1. signing a promissory note for the amount of the loan and
2.agreeing that if you default on the loan the lender can foreclose.

The mortgage is recorded in Flint at the register of deeds office. It then becomes a lien on the property.

When you take out a loan on a car you are signing a promissory note and a security agreement that allows the car to be repossessed in case you default. When the seller records the security agreement it becomes a lien against the car.

When you file for bankruptcy the promissory note part of the secured debt is cancelled however the lein securing your payment remains. The mortgage holder can still foreclose on the lein against your house.

To keep your house or car you will have to be current on the payments and not have significant non exempt value or equity in the house or car.

Your chapter seven bankruptcy will cancel the amount you owe on the promissory note but it will not affect the lien which means the lender can repossess your car. You can be then forced to reaffirm the underlying promissory note.

In bankruptcy you can be forgive the debt owed on your house or car but you will have to return them to the lender unless you reaffirm the debt.

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