May 26, 2020
Bankruptcy can be a scary process when you do not know what property is at stake. When people file, one of their fears is that they will lose essential property such as their car or their house.
Based on state bankruptcy exemptions, the equity value of your property, homestead protection laws, and what chapter you file for, filers can have a better likelihood of keeping both their car and home during the bankruptcy process.
Depending on whether you file for Chapter 7 liquidation or Chapter 13 wage earner’s plan, will determine what you will owe, how and if you can keep your car and home.
The Difference Between Chapter 7 & Chapter 13
Firstly, it is important for filers to understand the basic differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy in Virginia.
Chapter 7 is known as liquidation. Even though it is called “liquidation”, most Chapter 7 clients keep all of their property, including their car and house. This is because of certain exemptions that protect certain property. If you have only a little equity in your car or house, you should file for this type of bankruptcy.
In Chapter 13 bankruptcy, a debtor begins to pay back their creditors through a repayment plan. These repayment plans will usually take 3-5 years. Because a filer of Chapter 13 bankruptcy has enough of an income to continue making payments on their debts, their risk of losing their property is significantly lower compared to Chapter 7 filers.
The best determinate in knowing what property you can keep during a bankruptcy filing is your state’s bankruptcy exemptions.
State Exemptions
Each state varies in their exemptions — the equity on your property that is protected against a bankruptcy trustee reselling it to pay off creditors.
Simply put, bankruptcy exemptions tell you how much of your property you get to keep.
For Chapter 7 bankruptcy, these state exemptions can protect your assets if their equity value is covered. For Chapter 13, these exemptions can help lower the payments to your creditors and lenders for your repayment plan.
Read more about the specifics on Virginia state exemptions for motor vehicles and residential property based on each chapter.
What Do I Keep When I File Chapter 7?
Each bankruptcy case will vary depending on the equity in your car or house, how much you owe to creditors, your household income, number of dependents, etc.
Chapter 7 filers can maintain their property in cases where the amount of the property equity is either equal to or less than the state exemption amount. Equity in your property is the difference between the current value of the property and how much you owe on it.
For instance, if you have a car worth $8,000 at current market value, but you owe $3,000 on it, you have an equity value of $5,000.
Similarly, with a home, if you owe $7,000 on a house that is currently worth $16,000, you have an equity value of $9,000.
Virginia Motor Vehicles Exemptions
Under Virginia law, filers have up to $6,000 in equity for their motor vehicles. In a joint case with a married couple, each spouse has up to $6,000 for a car in their name. This means that $6,000 in equity is protected from resale by an appointed bankruptcy trustee.
Your car will be protected in Chapter 7 bankruptcy filing if its equity is equal to or less than $6,000.
In some cases, if your vehicle’s equity is over the $6,000 exemption, you will have the option to use an unused portion of Homestead Exemptions (up to $5,000) in Virginia.
If the equity in the property does not amount to the $6,000 exemption, you will likely keep your vehicle. Trustees can deem it unworthy of sale, meaning the time and money put into resale would cost more than what the car is worth, leaving the trustee with nothing to pay creditors. In this instance, you would keep your car.
Virginia Homestead Exemptions
Virginia’s Homestead law exempts $5,000 for residential property, personal property, or both. Alongside the $5,000 exemption, there is an additional $500 per dependent that goes towards protecting your property. This exemption will double to $10,000 if you are a disabled veteran or if you are over 65 years old.
To receive the $5,000 exemption, you must file a homestead declaration prior to or after filing for bankruptcy. However, it must be filed within five (5) calendar days after your meeting of creditors. If the exemption is not enough to cover the entirety of your house’s equity, then a trustee appointed by the court can sell it and pay off your unsecured debt with the proceeds.
On the other hand, you will be able to keep your house if you are currently paying your house payments and/or the total exemption covers the equity of your home (value of your home less what you owe on it).
In total, exemptions are set in place to help filers keep inexpensive property that is vital in order to work and live. To have the best chance of securing your property, you should consult with the lawyers at Cravens & Noll, who specialize in bankruptcy. Having legal counsel during the bankruptcy process can help save your property.
What Do I Keep When I File Chapter 13?
Chapter 13 bankruptcy differs from Chapter 7 in that it puts filers on a repayment plan to pay back outstanding debt to creditors. In some cases, this can be the safest option to ensure you keep all your property fully protected. Typically for these bankruptcy filings, debtors will not lose any of their property.
Chapter 13 is specific to those still earning an income and it allows debtors to reorganize debts. With this filing, you may be able to pay less on some of your debts. The amount that you will pay creditors, however, depends on the amount of property that can be exempt through exemptions in the state of Virginia.
The nonexempt equity amount of your property is used to determine what you will pay on during your 3-5 year repayment plan for Chapter 13 bankruptcy. This is called the “liquidation analysis”. For example, if your house has $20,000 in non-exempt equity, then at a minimum your repayment plan must pay your general unsecured creditors at least $20,000. To do this, you will have to prove you have enough income to pay on the amounts required in your repayment plan.
Virginia Motor Vehicle Exemptions
Because this chapter of filing is for those who earn an income, it focuses on repaying the entirety of your nonexempt equity on your vehicle. If you have a car loan, your repayment plan will include monthly payments on your loan.
With the $6,000 exemption in equity, filers will not have to pay that amount during their repayment plan because it falls under state exemptions.
For instance, if you own a car worth $15,000 and you owe $4,000 on it, the equity of your car is $9,000. Virginia’s motor vehicle exemption protects $6,000 of this amount, leaving $3,000 as nonexempt. In this case, your repayment plan will have to include $3,000 of nonexempt equity to pay back to general unsecured creditors.
Homestead Exemptions
As with cars, bankruptcy trustees cannot take your home in a Chapter 13 filing. If you are short on a mortgage payment but want to keep your house, your repayment plan will have to include the nonexempt equity of your home and the mortgage payments.
To qualify for this chapter, you will have to prove your income is enough to cover what you owe within 3-5 years. Since the exemption is $5,000 and $500 per dependent per Virginia’s Homestead laws, the nonexempt equity after these exemptions is what will have to be paid to creditors through your plan.
Simply put, you can keep your nonexempt property, but you will have to pay your creditors an amount that is equal to the nonexempt value of your property.
For example, if your home is worth $150,000 but you have a mortgage balance of $50,000, your home’s equity is $100,000. The amount of exempt equity depends on whether you have dependents, are a disabled veteran or over 65.
When the exemptions are taken into consideration, whatever is left of nonexempt equity is the minimum amount you will have to pay your creditors during your payment plan.
Contact Cravens & Noll Bankruptcy Law Group
The best way to be sure you are getting the best results from your bankruptcy case is to consult with lawyers who specialize in this area. With years of experience, the lawyers at Cravens & Noll are ready to protect your car and home amid your bankruptcy case.
Worried about if you will lose your home and car? Contact us now for a free initial bankruptcy consultation