Most consumers considering bankruptcy are often concerned with being forced out of their home and having to surrender their vehicles. Filing for bankruptcy does not mean that assets need to be tendered to the Court (through the Bankruptcy Trustee).

Most bankruptcies petitions in Spokane County are Chapter 7 non-liquidation cases. Non-liquidation means that there is no property to liquidate or sale after all exemptions are applied to the case.

Proper exemption planning is necessary to achieve a successful discharge. Most property can be exempted if properly valued and disclosed in the bankruptcy schedules. Using the proper exemptions, most consumers are able to keep their home and their cars.

If a consumer decides to keep a home or a vehicle, what happens to the debt associated with them?

In a Chapter 7, a creditor will require a reaffirmation agreement or it will have the right to repossess the asset.  However, creditors are often in favor of reaffirming debts as it also protects their interest. The agreement will, in essence, make the obligation on the home and/or car survive the bankruptcy and giving the creditor the authority to repossess or foreclose if the consumer falls behind on payments.

A debtor wants a reaffirmation agreement as this is what ensures that once the obligation is paid to a creditor, the creditor has to tender the title. Some lenders will not refinance a home and/or vehicle loan if there is no reaffirmation agreement in place.

Depending on each individual consumer circumstances, most equity on vehicles can be exempted with proper exemption planning. Consumers can also choose to reaffirm any obligation owed against the vehicle that is pledge as collateral.

Consumers could choose Washington and/or Federal exemptions, but usually an attorney will make that determination based on the client’s best interest and objectives.

Regarding homes, consumers may be able to keep a primary home with equity of up to $125,000.00. Typically, a consumer will look at the value of the home (county tax assessment) and compare it with what is actually owed on the property.

It is important to note that some creditors will not allow for a reaffirmation (the reaffirmation agreement must be signed by the creditor and the debtor, thus, if the creditor does not agree, there is no reaffirmation that be entered into) if the account is not current with the payments.

Can I keep my home and my car if I am not current with the payments?

In this case, a Chapter 13 filing maybe the better option. Chapter 13 allows consumers to catch up with any obligation they are not current in to be able to keep that asset (home and/or vehicle). In our district the consumer must still make the entire monthly payment (and be able to show that they have the financial income to continue making the payment in the future), as if it was current. The amount in arrearage will have also be paid, but in installments.

These process will have to be documented and approved by the court in a Chapter 13 plan. If a consumer wants to file Chapter 7 while behind in payments, then one of the only options is to get the payments caught up before the filling of the bankruptcy.

If you have any questions about bankruptcy, or you are considering your options, please contact our office at (509) 927-3840.

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Hector E. Quiroga
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