Law Offices of:
Robert N Zimmerman, Jr.
(813) 655-4900                                           
1106 N Parsons Ave., Ste 202                                                                                        
Brandon, FL 33511



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Keep My House and Car | Include my car house Bankruptcy

Many people considering bankruptcy immediately want to know if they lose their property and are especially concerned with their house and car. This page is addressing only the questions about the house and car. Please take note that state law may effect the answers.

A good place to start in answering the questions about the house and car would be the differences between Chapter 7 and Chapter 13 bankruptcies. It is Chapter 7 that is the liquidation type bankruptcy where losing property is of greater concern. Consequently, this page assumes a Chapter 7 filing.

The car and the house will be treated as separate issues with the car being first.

As for the car there are different scenarios.

1. There is no equity in the car. The car is owned by the debtor but is subject to a lien equal to or greater in value than the fair market value of the car.
        In this case the trustee has no interest in the car and would be expected to abandon it. However, the creditor with the lien has an interest. An option here would be to surrender the car to the lien holder but most people I deal with need to keep their car. So, another option is to reaffirm the debt which requires a valid reaffirmation agreement timely filed in the bankruptcy case. Some creditors will allow continued payments without the reaffirmation agreement but that can be a little risky. One more option would be to redeem the car but that would require paying the creditor the full fair market value of the car or other agreed amount. Disputes regarding fair market value may arise.

2. There is equity in the car. The car is owned by the debtor and has no lien or the car is worth more than the amount owed.
        Now you have to look to state law regarding exemptions. If the applicable state law allows for an exemption equal to or greater in value than the equity in the car you can claim that exemption in schedule C and assuming there is no basis for the exemption to fail you can keep the car. In Florida we have a $1,000.00 exemption for a motor vehicle but we also have personal property exemptions that we sometimes use to gain greater exemption value. If the full value of the equity in the car is not exempt there is a risk that the trustee will sell the car. If the non-exempt value is very small the trustee might abandon the asset. Another option that may work to keep the car in the debtor's possession is to buy the non-exempt portion from the trustee. However, that requires making a deal with the trustee that works out. And lets not forget the lien holder if there is one. Again reaffirming the debt or redeeming the collateral would be options.

The house is a little different. We will use the same two scenarios 

1. There is no equity in the house.
        In this case we expect the trustee to abandon the house. However, the creditor holding the mortgage or other lien has an interest in the house and even though the debtor's personal obligation to pay the debt may get discharged the lien will not be effected by the bankruptcy discharge. In bankruptcy there are two options available since redeeming property does not apply to real estate. The two remaining options are as follows:
    a) Surrender
    b) Reaffirm

Assuming the debtor wants to keep the house then surrendering it is not an option they want. The second option provided in the Bankruptcy Code is to reaffirm. However, reaffirming a mortgage revives the debtor's personal obligation to make the payments. Since mortgages are usually long term and large obligations it's nice if you can find another way. 

Another option, not provided in Bankruptcy Code, but one that may work is to retain the property and keep current. This is a risky option best addressed by competent counsel in the state where the bankruptcy is filed. Some states would not consider the bankruptcy discharge a material breach of the mortgage contract and as long as the payments are not in default then foreclosure might not be permitted. Even in questionable states, if the mortgage carrier goes a long with this option then they won't be foreclosing as long as the payments are current and kept current. Please bear in mind that failing to make the mortgage payments is very likely to bring trouble.

2. There is equity in the house.
        Now you need to check state law for some way to exempt that equity. Here in Florida, as in other states, we have a homestead exemption. There are some limitations regarding what constitutes a protected Florida homestead. If it is your primary residence it is likely exempt. However, even if the property meets the definition of a protected Florida homestead a individual might not be able to claim the exemption in bankruptcy. The state exemptions that you claim are determined by the state in which you have been domiciled for 730 days (2 years) immediately prior to filing your bankruptcy petition.    
 
If you have more than one mortgage on your house or a mortgage and an equity line of credit you might want to consider lien stripping if the facts are right. It would require filing under Chapter 13.

   

The author of this website is a lawyer licensed to practice in the state of Florida and the U.S. District Court, Middle District of Florida. It is against the law and unethical to provide legal advice or otherwise practice law in a venue where the attorney is not licensed. All of the bankruptcy information contained in this website is provided for educational purposes only. Please bear in mind that state law effects bankruptcy issues. General education helps people understand bankruptcy but it is not a substitute for legal advice by a competent attorney licensed in the state and the Court where a person files bankruptcy. Further, not all Bankruptcy Courts interpret the U.S. Bankruptcy Code the same way. Consequently, counsel familiar with the court that the petition is filed in is very important. 


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