• 18
  • November
    2011

In our previous post, we began looking at an article on the Bankruptcy Home website which discusses various common questions about the two forms of bankruptcy. We have already looked briefly at the issue of preventing foreclosure.

Another common question is whether bankruptcy will allow people to keep their car. After all, a vehicle is essentially for many people to get to work and care for themselves and their family. The answer again is maybe, and it depends on which bankruptcy chapter is filed.

In Chapter 7 bankruptcy, state or federal exemptions may protect a vehicle, but there may be certain circumstances where the trustee will liquidate the vehicle unless arrangements have been made to redeem or reaffirm the debt. Redeeming the debt means that a secured creditor will be paid the value of the collateral in exchange the release of a lien by a creditor. Debt is reaffirmed when a creditor signs an agreement to continue making car payments after bankruptcy.

In Chapter 13, vehicles may be protected provided the debtor makes the required payments under their repayment plan.

The last question we will take up from the article is whether bankruptcy can remove a lien. This is an important point to understand, particularly in regard to foreclosure. Bankruptcy does not discharge tax liens on the property, so if the IRS has attached such a lien they are able to seize the property or wait until it is sold and receive payment from the proceeds of the sale.

Other types of liens are not automatically removed from the property, even though a discharge will void the underlying judgment. So a lender whose loan is discharged in bankruptcy may not collect on the loan, but the discharge does not destroy the lien.

It is important to note that some debtors are able to file a motion to cancel a lien if the judgment impairs their ability to claim a homestead exemption.

Bankruptcy can be a complicated topic. It is wise, if you feel you may be headed for bankruptcy, to consult a knowledgeable attorney to work through your questions and concerns.

Source: Bankruptcy Home, "Chapter 13 vs. Chapter 7 Bankruptcy," October 27, 2011.