Filing for bankruptcy is a big decision, and if you’re like most people in North Carolina, one of your biggest worries is whether you can keep your car. After all, for many Americans, your car is your way to get to work, to drop the kids off at school, and to handle the errands that life throws your way. The thought of losing it can make an already stressful situation even worse.

Can I File Bankruptcy and Keep my Car?

The good news is that in many cases, you can keep your car when you file for bankruptcy in North Carolina. It all depends on the details of your financial circumstances and the type of bankruptcy you choose, and it’s best to consult an attorney to see what applies to your situation.

Understanding Bankruptcy Basics in North Carolina

Before we dive into how your car fits into a bankruptcy case, let’s take a quick look at how bankruptcy works in North Carolina. When you file for bankruptcy, you’re essentially telling the court that you can’t pay your debts and need a fresh start. There are two common types of bankruptcy that individuals file: Chapter 7 and Chapter 13. Each one handles debt and assets in different ways.

Chapter 7 is often called a liquidation bankruptcy. It may involve selling off certain assets to pay your creditors, but in most cases selling off assets does not occur. North Carolina law allows you to protect some property, like your home or car, through exemptions. Chapter 13 is a reorganization plan where you keep your property and repay a portion of your unsecured debts or none of your unsecured debts depending upon your financial situation.

A chapter 13 plan can be for a minimum of three to a maximum of five years through a court-approved repayment plan depending upon your financial situation. Whether you keep your car often hinges on which chapter you file under, the amount of equity in your car, and how much of that equity is protected under exemption laws.

How Car Exemptions Work in North Carolina

North Carolina, like every state, has a set of bankruptcy exemption laws that determine what property you can keep when you file for bankruptcy. For your car, the state allows you to protect up to $3,500 in equity under the motor vehicle exemption. If you’re married and filing jointly, that exemption doubles to $7,000 if the car is titled in both your names.

Equity is key here. Equity is the difference between what your car is worth and what you still owe on it. For example, if your car is worth $10,000 and you owe $7,000 on the loan, you have $3,000 in equity. That means your equity would be fully protected under the $3,500 exemption. If you own your car outright and it’s worth more than the exemption limit, you may choose to file chapter 13 bankruptcy so it is protected as opposed to a chapter 7.

North Carolina also has a “wildcard” exemption of up to $5,000, which you can apply to any property, including a car. This wildcard comes into play if you didn’t use the homestead exemption for your residence. So, if your car’s value exceeds the $3,500 limit, you might be able to use the wildcard to cover the extra amount. A bankruptcy attorney can clearly explain the exemptions and how they apply to your specific circumstances to fully protect your vehicle as well as your home.

Keeping Your Car in a Chapter 7 Bankruptcy

If you’re filing for Chapter 7 bankruptcy in North Carolina and exemptions fully protect your car’s equity, you’ll likely be able to keep your car. But what if your car is worth more than the allowed exemptions? That’s where things get tricky.

If you have too much equity in your car, the trustee might decide to sell it, give you your exemption amount in cash, and use the rest to pay creditors. To avoid losing your car, you might be able to “buy it back” from the trustee by paying the non-exempt portion.

If you’re behind on your car payments, you’ll have to catch up quickly or risk repossession. Chapter 7 doesn’t offer a way to catch up on payments over time, so if you’re struggling to keep up with your car loan, Chapter 13 might be a better fit.

Keeping Your Car in a Chapter 13 Bankruptcy

Chapter 13 bankruptcy gives you more flexibility when it comes to keeping your car. Since it’s a repayment plan, you can include your car loan in your monthly payments and catch up on missed payments over time, which is a huge advantage if you’re behind on your car payments and facing repossession. Even if your car is worth more than the exemption limits, you can still keep it in a Chapter 13 case as long as you make the required payments.

In Chapter 13 bankruptcy, your car loan becomes part of your overall repayment plan, which typically lasts three to five years. This means you can spread out the payments you owe, including any past-due amounts, making it easier to manage your finances. The bankruptcy trustee will review your plan to ensure it is feasible and that you are making reasonable efforts to pay your debts.

Another benefit of Chapter 13 is the possibility of a “cramdown” on your auto loan, which can reduce the loan balance to the current fair market value of your vehicle. This can be especially helpful if you owe more on your car than it is worth, a situation known as negative equity. By lowering the secured portion of your debt, the remaining unsecured debt may be discharged at the end of your repayment plan, easing your financial burden.

It’s important to note that to qualify for a cramdown, you must have owned the vehicle for more than 910 days (about two and a half years) before filing. Additionally, the cramdown does not apply to vehicles used for business purposes or those driven by someone other than the debtor.

Throughout the Chapter 13 bankruptcy process, you must keep making your car payments as outlined in your repayment plan. Failure to do so can result in the car lender seeking permission from the court to repossess your vehicle. Therefore, maintaining consistent payments is critical to keeping your car.

Consulting with a bankruptcy lawyer can help you understand how Chapter 13 bankruptcy can work for your specific situation, including how to structure your repayment plan to protect your vehicle and manage your debts effectively.

Call Gillespie & Murphy, P.A Today Regarding Your Bankruptcy Case

So, can you keep your car if you file bankruptcy in North Carolina? The answer is often yes, but it depends on your specific situation. If your car’s equity is within the state’s bankruptcy exemptions limits and you can keep up with the payments, you’ll likely be able to keep your car in a Chapter 7 case.

If you’re behind on payments or have more equity than the bankruptcy exemptions allow, Chapter 13 might offer a way to hold onto your car while working through your debts.

Bankruptcy is a big decision, and it’s important to talk with a bankruptcy attorney who understands North Carolina’s bankruptcy laws. They can help you figure out the best path forward and make sure you’re making choices that will set you up for a more stable financial future. Your car is important, but so is your peace of mind.

Call Gillespie & Murphy, P.A. today at 252-659-5045 to schedule a free consultation with our team. With the right information and a solid plan, you can take control of your situation and make the best choices for your life.