Thursday, November 7, 2013

How to Keep Your Car When Filing for Bankruptcy After Retirement

You need to make serious changes in your life when you are filing for bankruptcy after retirement. You will probably need to give up your credit cards and live a more frugal lifestyle. This is a common problem that many people face in their first few years after they stopped working, because they aren’t used to living with less money. 

Most of the changes that you need to make probably won’t be as bad as you would expect. However, there are some changes that you may not be able to accept. Giving up your car would be a hardship that you may not be able to make. Many people in retirement couldn’t possibly survive without their car.

You depend on your vehicle to get to run important errands. Fortunately, you may be able to still keep your vehicle if you play your cards right. Ideally you will be able to keep your car if you intend to keep driving during retirement.
Understanding Bankruptcy Exemptions

Most people assume that they will need to forfeit their vehicle after filing. However, there are a few exemptions that you should be aware of.

Some states have wildcard exemptions. These exemptions mean that you can protect the equity of your vehicle if it less than the state’s wildcard exemption. For example, Alabama has a wildcard exemption of $3,000. You would need to see what the equity in your vehicle is to see if you can protect it. For example, your lender can’t legally sell your vehicle if it is valued at $25,000 and you owe them $23,000. If you only owed $20,000 then you wouldn’t qualify for this exemption because your equity would exceed the state’s wildcard limit.

There is also a federal wildcard exemption which allows you to protect up to $3,450 in equity. You may be able to combine the state and federal wildcard exemptions to fully protect the equity of your vehicle.
Consider a Reaffirmation Agreement

You can also work with your lender to keep your vehicle. One way that you can do this is by forming a reaffirmation agreement. This agreement allows you to keep your car after bankruptcy as long you keep making payments. It is possible to negotiate lower payments, but most people aren’t successful. There is no harm trying though. You should also find out what your loan payments are going to be to ensure they will be affordable.

It sounds great to get a second chance, but this isn’t always a great option. You are reestablishing liability when you sign this agreement. You need to be certain that you can make the payments if you go this route. If you miss a payment then the debtor can both repossess your vehicle and force you to pay the remaining balance. This may not sound equitable, but it is a real risk that you need to be aware of.

Unfortunately, approximately two thirds of lenders require people to sign a reaffirmation agreement to keep their vehicle if they don’t fall under the exemptions. Therefore, signing a reaffirmation is an option that you need to be aware of if you think that you can make the necessary payments.
Motion to Redeem

The motion to redeem option allows you to buy your vehicle back at the current market value. This may not seem like a great solution at first, but it can be helpful if your car has depreciated considerably. You may owe $20,000 on a car that you bought a few years ago that is currently only worth $8,000. If you have $8,000 then you may want to use it to pay down the remaining balance on your loan.

About the author: Kalen is a freelance financial writer with an MBA from Clark University. He shares tips on budgeting and money management.

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