Short answer: you can generally keep the car or home, so long as you keep paying on the loan
Long answer: It’s complicated.
When you file bankruptcy, it generally discharges, or wipes out, almost all of your debt. However, you can pick and choose which secured debts you’d like to keep. For example, if you want to keep your home mortgage or your car loan, you check a box that says, “reaffirm.” This lets the bank know that you want to sign an agreement AFTER filing the bankruptcy, where you promise to keep making the same payments, balance, schedule, etc.
I’ve written a few blog topics on reaffirmation generally, and those links are listed below.
If you reaffirm the debt, it keeps reporting on your credit, and you have to keep paying on it. If you fall behind an face a repossession or a foreclosure after signing the reaffirmation agreement, that debt survives the bk, and they can sue you for the difference.
(Yes, you can change your mind and cancel or rescind a reaffirmation agreement, in some situations).
But what happens if you don’t reaffirm the debt? Normally, you surrender the collateral (like the home or car). In some situations, you can do a “ride through,” where you ride the car through bankruptcy and keep making payments. They won’t report it on your credit, but you can keep it so long as you stay current.
Some banks won’t let you do a ride-through, and they will still repossess if you fail to reaffirm.
As for the home, so long as you keep paying on it, it’s yours.
As for “voluntary payments,” well, they have to say that. When the debt is discharged in bankruptcy, they cannot legally collect on it. But if you call customer service and voluntarily make a payment on the loan, they are glad to accept your money. That’s why they keep saying, “voluntary.” No one is twisting your arm and trying to collect that payment.
Here are a few blog articles on reaffirmation, cars, homes, and not reaffirming:
It comes down to a lot of factors, but if you want to boil it down to a simple test, here it is: if it smells funny, then you’ve got a problem.
If the property is clearly your spouse’s, was always theirs, you never helped pay for it, and they’ve owned it for some time, then you do NOT have an ownership interest. However, if you bought it together, or if you’ve made all of the payments on it, or if you gifted it to her, then you’ve got an ownership problem.
When you file bankruptcy, your bankruptcy estate is created. This estate means all of your property, real, personal, and intangible. So if you own a home, a car, and have a right to receive a $5,000 tax refund, then all of these items go into your estate.
We try to exempt, or protect your property so that the bk trustee cannot take your estate property and sell it off to pay creditors. For example, in Utah, only $3,000 of your car’s value is protected. So if you own a car worth $10,000 free and clear, then only $3,000 is safe, and the bk trustee will take it and sell it off. He’ll give you $3,000 and use the rest to pay creditors (less his very healthy finder’s fee).
However, he can’t touch your spouse’s property. That being said, there are various degrees of ownership. If she’s owned her home for the past 10 years, and you only recently met and were married last year, then that home is hers, and the trustee won’t touch it. On the other hand, if you two bought the home 30 years ago, and you were the sole provider, then your money paid off that mortgage. You may not be on title, but you have an “equitable interest,” and there will be problems with the trustee.
Even worse, let’s say that you have a Ming vase that you inherited from your Aunt Mildred. It’s worth $80,000. Two weeks before filing bankruptcy, you “give” it to your wife. That doesn’t count! It’s a fraudulent transfer. The bk trustee will avoid the transfer, sell the vase, and pay your creditors. The shade of Aunt Mildred will be very displeased with you.
It’s all complicated and is usually figured out on a case by case basis. That’s why you want to meet with a bk attorney. Tell him everything. That way he can give you honest advice on how to protect your property (if you can).
Utah bankruptcy attorney Robert S. Payne discusses how you can file a skeletal bankruptcy case (a skeleton) to stop a garnishment, foreclosure, or repossession even if you haven’t finished gathering all of your paperwork and information necessary for a full bankruptcy petition.
Yes, unless you were doing something really, really bad.
When you file bankruptcy, most debts can be discharged (wiped out). Some debts have a priority status, like most taxes, student loans, child support/alimony, and criminal restitution. Those debts are NOT discharged by the bankruptcy.
So let’s say that you’re in a car accident and your financed car is wrecked. Hopefully, your insurance will cover it and pay the lender. But, sometimes insurance lapses, or doesn’t cover the whole loan balance. In that kind of situation, you can file bankruptcy and list the car loan balance in the bankruptcy. If there is a deficient balance that is not covered by your insurance, or your deductible, or lack of insurance, that balance will be wiped out by the bk.
As for the other car, if it’s your fault, hopefully your insurance will cover it. Unfortunately, there are times when you are not carrying insurance. (Shame on you)! In that kind of situation, the other driver might even sue you for the damages you caused. This debt can be listed in your bankruptcy.
But here’s the caveat: sometimes the damage to the other driver may NOT be discharged by the bk. This only happens if you were doing something really, really bad. If you did it willfully, or maliciously, or while intoxicated, you be NOT protected by the bankruptcy.
Under 11 U.S.C 523, these kinds of debts are not dischargeble:
(6)for willful and malicious injury by the debtor to another entity or to the property of another entity; … (9)for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance;
You lose it, unless you spend it first. But you won’t lose those pandemic relief tax monies (see below).
Some states will give you an exemption to protect your tax refund monies. Utah is not one of them. In fact, in most states, you have to use it or lose it. If you’re unsure, call a bk attorney in your state and find out.
I’ve written a few articles on this, and the links are below.
When you file bankruptcy, it is the bk trustee’s job to discover assets that you have. Specifically, he wants to find assets that can be sold off and used to pay your creditors. Normally, the trustee will look at equity in your home, money in your bank account, the value of you car, and any tax refund monies that you have NOT received yet.
This means that you have to receive and spend your tax refund before you file bankruptcy, or there is a good chance that the bk trustee will intercept it and use it to pay your creditors.
Here, I will try to give you a quick and dirty list of the do’s and don’ts of spending your tax refund monies.
pay off Mom and Dad before you file bk
buy a new toy, like a dirtbike
hide the money and claim that you spent it
buy food storage and clothing
buy boring household appliances like washer/dryer/refrigerator/freezer/stove/sewing machine
buy guns (really) (I can protect up to 3 of any value)
pay for vehicle repairs and tires
pay your attorney for your bankruptcy
Pandemic stimulus tax payments and tax credits.
If you haven’t received these yet, don’t worry. These are exempt from creditors, including the bankruptcy trustee.
Utah has NO exemptions to protect your tax refund when you file bankruptcy. This means that if you go bankrupt before you receive and spend your tax refund, you will lose it. The chapter 7 trustee will take your refund and use it to pay your creditors. On the other hand, if you wait just a little bit to file and receive your refund, you can spend it all before filing bankruptcy.
Just remember to spend it on exempt items.
You can definitely use it to pay your bankruptcy attorney to prepare your case.
Don’t pay off friends or family! Call me if you have any questions on how to spend it. You can even text me on a Saturday at noon as you’re standing in an RC Willey trying to decide if you should purchase the new $800 bunk bed set for the twins (yes, you can). You can text me at 801-787-8860.
The list is below, but you’re always safe with food storage, clothing, washer, dryer, refrigerator, freezer, stove.
Here is a rehash of my post on this same issue last year (and the year before):
It’s that time of year again where I have to answer the phone and tell people that I don’t want their money until February or later because of tax refund season. It makes a lean December/January in our household, but it’s the only way to protect my clients.
(I am cutting and pasting from earlier posts, so please forgive the repeat information).
So let’s say you get your refund February 1, 2016. What do you do?
Better said, what don’t you do:
1. Don’t go buy a new toy like a dirt bike or a tv.
2. Don’t pay off any friends or family. This is a preferential transfer, to an insider no less, and it results in Mom and Dad being sued by the trustee.
So what do you do:
1. Spend it on exempt items under Utah Law. This basically means food, clothing, washer, dryer, fridge, freezer, stove.
(Did you see a computer on the list? No. Don’t ask me if that’s okay. It’s not).
2. And use the rest to pay me.
So let’s say you spend the tax refund on food storage March 1st and keep all of your receipts. When can you file? March 2nd.
(C) provisions sufficient for 12 months actually provided for individual or family use;
(D) all wearing apparel of every individual and dependent, not including jewelry or furs; and
(E) all beds and bedding for every individual or dependent;
There are other items you can spend the money on, and this is by no means comprehensive, but this should give you a good idea on how to spend it. If you have questions on what to use it for, ask your attorney; that’s what he’s there for.
Short answer: You can discharge unemployment overpayments in both a chapter 7 and a chapter 13, but only if they don’t fight you over it for fraud. If they fight you, you’ll lose.
Long answer: Most debts are dischargeable in bankruptcy (they can be wiped out). There is a pretty limited list of debts that are non-dischargeable. Under 11 U.S.C. 523, the following debts are non-dischargeable (see list at bottom of page, with bold added).
Unemployment overpayments are not specifically listed in the group of debts that cannot be discharged. In other words, they normally can and are discharged. However, if the state has alleged fraud with those overpayments, it opens a whole new can of worms.
If the state has alleged that you committed fraud in receiving those benefits, you can still list them in your bk. After you file, the state has 3 months to file a bankruptcy lawsuit to show that those overpayments were received by fraud. If they file that lawsuit, called an “adversary proceeding,” you are probably going to lose. You will still owe those overpayments. If the state gets a bankruptcy court judgment that those debts are based on fraud, they win, and you’ll still need to pay them back, eventually.
Now I know that you are thinking that you didn’t mean to commit fraud, and you’ll fight them in bankruptcy court to prove that you are right. “Fraud” is such a harsh term, and it was more of a simple accounting misunderstanding. However, it’s expensive to fight them (this is not part of your normal bankruptcy), and they are almost always right. If you really think you can beat their fraud lawsuit, be prepared to pay at least another $5,000 to yet another attorney to fight their adversary proceeding.
And yes, this applies to state unemployment benefits, and those federal Pandemic Unemployment Assistance (PUA) payments as well.
Here is that list of debts that cannot be discharged:
(note that there are many exceptions to the tax ones). (1)for a tax or a customs duty—(A)of the kind and for the periods specified in section 507(a)(3) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed; (B)with respect to which a return, or equivalent report or notice, if required—(i)was not filed or given; or (ii)was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or (C)with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax; (2)for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—(A)false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; (B)use of a statement in writing—(i)that is materially false; (ii)respecting the debtor’s or an insider’s financial condition; (iii)on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv)that the debtor caused to be made or published with intent to deceive; or (C)(i)for purposes of subparagraph (A)—(I)consumer debts owed to a single creditor and aggregating more than $500  for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and (II)cash advances aggregating more than $750 2 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable; and (ii)for purposes of this subparagraph—(I)the terms “consumer”, “credit”, and “open end credit plan” have the same meanings as in section 103 of the Truth in Lending Act; and (II)the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor; (3)neither listed nor scheduled under section 521(a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit—(A)if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or (B)if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request; (4)for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; (5)for a domestic support obligation; (6)for willful and malicious injury by the debtor to another entity or to the property of another entity; (7)to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty—(A)relating to a tax of a kind not specified in paragraph (1) of this subsection; or (B)imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition; (8)unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—(A)(i)an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii)an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B)any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual; (9)for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance; (10)that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title, or under section 14c(1), (2), (3), (4), (6), or (7) of such Act; (11)provided in any final judgment, unreviewable order, or consent order or decree entered in any court of the United States or of any State, issued by a Federal depository institutions regulatory agency, or contained in any settlement agreement entered into by the debtor, arising from any act of fraud or defalcation while acting in a fiduciary capacity committed with respect to any depository institution or insured credit union; (12)for malicious or reckless failure to fulfill any commitment by the debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured depository institution, except that this paragraph shall not extend any such commitment which would otherwise be terminated due to any act of such agency; (13)for any payment of an order of restitution issued under title 18, United States Code; (14)incurred to pay a tax to the United States that would be nondischargeable pursuant to paragraph (1); (14A)incurred to pay a tax to a governmental unit, other than the United States, that would be nondischargeable under paragraph (1); (14B)incurred to pay fines or penalties imposed under Federal election law; (15)to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit; (16)for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case; (17)for a fee imposed on a prisoner by any court for the filing of a case, motion, complaint, or appeal, or for other costs and expenses assessed with respect to such filing, regardless of an assertion of poverty by the debtor under subsection (b) or (f)(2) of section 1915 of title 28 (or a similar non-Federal law), or the debtor’s status as a prisoner, as defined in section 1915(h) of title 28 (or a similar non-Federal law); (18)owed to a pension, profit-sharing, stock bonus, or other plan established under section 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code of 1986, under—(A)a loan permitted under section 408(b)(1) of the Employee Retirement Income Security Act of 1974, or subject to section 72(p) of the Internal Revenue Code of 1986; or (B)a loan from a thrift savings plan permitted under subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title; but nothing in this paragraph may be construed to provide that any loan made under a governmental plan under section 414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986 constitutes a claim or a debt under this title; or (19)that—(A)is for—(i)the violation of any of the Federal securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934), any of the State securities laws, or any regulation or order issued under such Federal or State securities laws; or (ii)common law fraud, deceit, or manipulation in connection with the purchase or sale of any security; and (B)results, before, on, or after the date on which the petition was filed, from—(i)any judgment, order, consent order, or decree entered in any Federal or State judicial or administrative proceeding; (ii)any settlement agreement entered into by the debtor; or (iii)any court or administrative order for any damages, fine, penalty, citation, restitutionary payment, disgorgement payment, attorney fee, cost, or other payment owed by the debtor. For purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law.
Only if you want to keep the car. If you stop paying for it, they will repossess it.
When you file a chapter 7 case, you check a box on your paperwork that says “reaffirm” or “surrender.” If you reaffirm the debt, you keep making payments with the same balance, terms, and payment (see below). If you surrender, then you stop making payments and let them repossess the car (but since you filed bk first, they cannot report it as a repossession on your credit, and they cannot sue you for the difference).
When you file a chapter 13, if you want to keep it, then you can either keep paying for your directly (outside of your chapter 13 plan), or you can propose to pay for it monthly as part of your chapter 13 plan. Either way, you keep paying for it. If you want to surrender it, then stop making payments.
So if you want to keep something that you financed, then you need to keep paying for it.
Every now and then I have a client ask me if the bk wiped out their car loan. They are asking because they sincerely believe that the bk would wipe out the loan and let them keep the car free and clear. It doesn’t work this way. Bk discharges your personal liability for the loan, BUT the loan is still attached to the collateral. If you want to keep the collateral (like the car), then you have to keep paying for it.
If you stop paying, they cannot sue you on the loan, which was discharged, but they can definitely repossess the collateral (your car or truck).