A car works kind of the same way. If you have a car that you don’t want to keep, then you put it in the bankruptcy and surrender it, and the car company takes the car back and your debt is discharged. If you don’t want to do something like that, you have the option to reaffirm the debt.
The Asset Would Not Be Included in Your Bankruptcy Filing and You Will Continue to Make Payments
Reaffirming the debt means that you would make an agreement with the lender to make an exception for that one particular debt within the bankruptcy. Even though everything else is being discharged, such as your medical and credit card bills and other obligations, if you wanted to keep your car, you might continue to make payment to the car loan people so they would let you keep the car.
That debt would be an exception from the rest of the bankruptcy. There are ways during a bankruptcy to keep assets like that if you want to.
What Is a Bankruptcy Exemption? Will It Protect My Assets?
Interviewer: What if you have equity in a home or car? Can you get relief without having to give the item up?
Court: Most of the time you can. There exists what is known as ‘bankruptcy exemptions’ for all of your assets. The exemption is basically a dollar value, and if you have an asset that’s worth less than the dollar value, you will be able to keep the asset and it will be exempt from the bankruptcy.
Bankruptcy Exemptions Are Based on Dollar Value and Allow You to Retain the Asset
In Utah, the exemption for a car is about to change to $3,000 per person. If you have a car that’s worth less than $3,000, you can keep the car. If you have equity in the car that’s worth less than $3,000, then you’re going to be able to keep that too.
If you have a car that’s worth more than that or the equity is above that $3,000 limit, then the trustee has the right to take the car, sell it, and distribute those proceeds to your creditors. It depends on where you fall on the equity line, how much you have and things like that.
Interviewer: What if you have a car that’s worth six thousand but you owe four thousand on it. You can still keep it, because you only have two thousand in the equity, is that right?
Court: Then you would do a reaffirmation agreement, like I mentioned earlier, with the lender and then you would be able to keep the car and just continue to make payments on it.
In Utah, Equity Thresholds Determine Whether or Not You Can Retain an Asset
Interviewer: It’s the same procedure with a house, I guess? I don’t know what the equity limit is in Utah, but let’s say you had a house with $40,000 in equity. If it’s below the threshold you can keep it?
To Retain Your Home, the Equity Threshold Is Currently Approximately $25,000
Court: Yes. The limit is lower than that in Utah. It is $25,000, though I think the limit is going up in May, so it is going to be slightly higher than that. It adjusts for inflation.
Then I think you have another $5,000 you can use it for a sort of miscellaneous exemption. If you have less equity than that limit, then you can keep the house, yes.
Because of These Exemptions, People Who File for Bankruptcy CAN Retain Some Assets
Interviewer: So people shouldn’t be afraid that the bankruptcy court is going to come and take everything they have?
Court: No, no. Typically people don’t lose anything at all, even cars and other assets.
Even if you’re above the exemption limit, really, for it to be worth the trustee’s trouble, the asset has to be significantly above the exemption limit.
They just have to go through a lot of trouble to have it assessed and have somebody come pick it up, so they usually don’t bother with it unless it’s going to be worth enough money to give your creditors something to go home with.
It’s really typical for somebody to file bankruptcy and not lose a single asset that they have.
This Is Why It Is Vital to Comply with Full Disclosure When Filing for Bankruptcy
Interviewer: They’re not going to come to your house, or go through your personal possessions?
Court: No, they’re not. You may not lose any of your assets as long as you are straightforward about everything when you fill out your petition, as long as you’re honest about all the assets that you have, with the trustee and on your petitions.
As long as they’re not going to get nervous about you lying to them or trying to hide assets, no one’s going to come to your house. I’ve never had that happen to me with any of my clients. I’d say it’s very rare for that to happen.
Interviewer: What else do you hear, when people come to see you that worries them that we haven’t addressed? I want to eliminate all worries and give answers to anything people may have issues about that would prevent them from filing when they need to. Is there anything we haven’t covered?
Court: Most of the time people are worried about what debts are going to get discharged, and we talked about that a little bit. Most of the time people have wage garnishments or medical bills, and we can take care of those right away.
The other thing is that a lot of times people are nervous about the stigma associated with bankruptcy filing, and we talked about that. They’re also nervous about their credit score, and we talked about that too.