How To Keep Your Car After You File An Illinois Bankruptcy

In 2018, the number of seriously delinquent auto loans (more than 90 days past due) reached a five-year high. The worse news is that the risk of auto repossession starts much earlier. In most states, including Illinois, lenders can technically repossess vehicles after just one missed payment. If the borrower has a less-than-stellar credit history, such action is quite likely.

So, if you are more than two payments behind, you probably need to file Chapter 13 bankruptcy. This action triggers the Automatic Stay. Lenders cannot take adverse action, such as vehicle repossession, unless they have special permission from the bankruptcy judge. Typically, this protection stays in place as long as the bankruptcy is pending.

The automatic stay may be the best reason to file Chapter 13 and protect your family car. But Section 362 of the Bankruptcy Code is not the only protection that bankruptcy debtors have in this situation.

Initial Exemption Strategies in Illinois

In Illinois, the motor vehicle exemption is $2,400. As long as the debtor does not default on the loan, the trustee (person who oversees the bankruptcy for the judge) cannot seize the car, sell it, and use the proceeds to pay off creditors.

$2,400 does not seem like much money, especially considering the MSRP of even a small compact car may be five or ten times that amount. But $2,400 is the vehicle’s “garage sale value.”

Arriving at this figure takes a little effort. Most people start with the Kelly Blue Book value. KBB establishes the fair market value for vehicles in excellent, good, or poor condition. Nearly all vehicles are in “good” condition, meaning that they are driveable but need some cosmetic or other work.

The value which debtors list on Schedule A is usually 80 percent of the fair market value. The IRS uses that rule of thumb to determine an item’s QSV (quick sale value). That’s the value which must be on the bankruptcy paperwork.

Motor vehicles depreciate very quickly in the first few years. So, most vehicles have either basically no value or extremely high loan balances. If the loan balance exceeds the collateral’s value, the trustee will not take action under almost any circumstances.

Fighting a Chicago Motion for Turnover

If the trustee tries to take your car, you have options. A bankruptcy attorney can either get the car re-valued and file an amended schedule or fight the motion for turnover straight up.

Most “we buy cars for cash” vehicle investment companies initially offer pennies on the dollar. So, if your vehicle is worth $3,000, a $300 offer is not too uncommon. An attorney can use the written offer as the vehicle’s bankruptcy value. In nearly all cases, the bankruptcy value is substantially lower than the exemption amount.

Contesting the motion for turnover is another good strategy. Most judges refer these matters to mediation. During mediation, the lender has a duty to negotiate in good faith. In other words, the lender must be willing to make sacrifices to get a deal done. That sacrifice could include reducing the outstanding loan balance, moving the delinquent payments to the end of the loan, or some similar move.

Count on Aggressive Lawyers

Bankruptcy can save your car. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Illinois and Indiana.

Resource:

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