If the collateral is real estate and your payments are current on the date that you file the Chapter 7, and your equity in the collateral is covered under the exemptions ($35,000 per spouse or $70,000 total in Western North Carolina), you may keep the property so long as you continue to make the payments and comply with the terms of your contract. We call this the “be-current-and-stay-current” right to retention.
You can generally do the same thing with cars because creditors almost always accept payments from you rather than repossess your vehicle. To be absolutely sure you can keep your car (or other personal property) that secures a debt secured by the property, you must sign a reaffirmation agreement. I usually try to avoid reaffirmation agreements on cars for clients because signing them reinstates the debt. However, sometimes doing so makes sense. You do have a right to reaffirm your car loan debts, which means the worst case scenario in a Chapter 7 case is that your car payments are not affected by your filing.
You may also redeem a car by paying the creditor the value of the collateral. The value of a vehicle is the amount for which it would be sold at retail by a used car dealer in its current condition. For example, if you owe GMAC $15,000.00 secured by a vehicle which has a retail value of $10,000, you can pay GMAC $10,000.00 and keep the vehicle. I generally recommend United Services Credit Union here in Asheville. You can think of this option as a way to refinance your current car, and knock off part of the principal at the same time.
Your final option is to give the property back to the creditor (“surrender” the property) and have the debt discharged. This option works well for underwater cars which a client would like to replace anyway.
If you are wondering what option is best for you, you can find out in a free, initial consultation.
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