Bankruptcy: Lose Your Debt, Not Your Car

Filing bankruptcy in Washington State doesn’t mean you have to lose your shirt — or even your car or house, for that matter.

When you file, you are asking the courts to declare your debts discharged, which means that you no longer owe them. Technically, however, a debt cannot be discharged that is secured by a good. If you’re making payments on a car or house, under the law you would have to return them to the creditor if your filing is accepted.

Recognizing that a car and a house can be necessary to living, however, the law allows an exception. If your creditors agree, your attorney can file a reaffirmation agreement stating that, although you want to discharge other debts, you wish to continue making your car payment or mortgage payment.

Other options

The courts sign off on these agreements most of the time. But if the amount owed far exceeds the house or vehicle’s worth — if it’s upside-down — the judge might refuse. You basically have three options:

* Surrender the property. One of my clients owed $25,000 on a car worth only $10,000. In that case, the client was better off giving the car back to the bank. In most cases, even people who file bankruptcy are able to get another car within a few months.

* Reaffirm with the creditor. If the terms of your loan are so bad that a judge won’t let you keep it, the creditor will likely allow you to reaffirm the obligation, but you must be up to date on the payments (for a chapter 7 filing).

* Redeem the property. If your car is worth $5,000 but you owe $15,000, you have the option of paying the fair-market value in cash and keeping the vehicle. In most cases, people filing bankruptcy don’t have the cash on hand, but may be able to get a friend or family member to lend the money.

When considering your bankruptcy filing, the judge will consider your income, expenses, and property owned. If you have only one car, chances are you’ll be allowed to keep it. But if you have several, the courts may balk at allowing you to keep them all unless other members of your household are using them.

Who can file?

Who can file bankruptcy? If your debts seem insurmountable and you earn less than about $53,000 a year (the income guidelines change during the year, and this number would be for single individual), you may be a good candidate for filing. For a family of two, the limit increases to $63,490, and to $73,000 for three. There are no debt requirements per se, but you’ll want to consider the cost of filing against the benefit to you.

Filing bankruptcy is often a last resort following a period of stress over mounting debts. Why worry yourself more over losing the roof over your head or your transportation to work?

The Quiroga Law Office’s knowledgeable staff can simplify the bankruptcy process for you, and ease your fears. Contact us today at 509-927-3840 and let us help put you back on the road — not just to your job, but also to financial independence.

Other Resources:

United States Bankruptcy Court (Eastern District of Washington)

Bankruptcy: Lose Your Debt, Not Your Car | Copyrighted Material of the Quiroga Law Office, PLLC