Many people believe that filing for bankruptcy means being forced to give up one’s most valuable assets and cherished possessions. This is actually not true in the majority of bankruptcy filings in Arizona. There are multiple strategies to ensure that you don’t lose your vehicle, home, savings, and personal belongings, even if you clear your debt with bankruptcy. Making sure that your filing is complete and accurate, as well as being the right decision for your situation in the first place, can be overwhelming if you don’t have an extensive legal background. But mistakes in your filing could put your vehicle and other important assets at risk. Don’t wait until it is too late to protect yourself from creditors to learn more about the debt relief that bankruptcy offers. You can speak with a member of our Arizona bankruptcy team from the comfort and privacy of your own home. Discuss your potential bankruptcy filing in Phoenix or Tucson today by calling 602-649-4949.
What Is a Reasonable Car Payment in a Bankruptcy Context?
Ever since the pandemic, the cost of vehicles, both used and new, has increased dramatically. This has caused the IRS to increase local transportation expense standards for both operating costs and ownership costs. These are the standards bankruptcy courts use to determine if a bankruptcy debtor has a reasonably-priced vehicle. For the purposes of these standards, the IRS includes Pinal County in the Phoenix metropolitan area. In Phoenix, the local standard for ownership costs, i.e., a car payment, is $619 for one vehicle and $1,238 for two vehicles. For operating costs, the IRS allots Phoenix residents $300 for one vehicle and $600 for two vehicles. If the bankruptcy debtor uses public transportation and doesn’t have a vehicle, they can use the national standard of $215 per month for their transportation expenses.
So what happens if a bankruptcy debtor’s vehicle ownership or operating costs exceed the IRS local standards? It doesn’t automatically mean the debtor’s vehicle(s) will be seized and sold at bankruptcy auction. But when the debtor is calculating their monthly expenses for either chapter 7 or chapter 13 bankruptcy purposes, any transportation expenses exceeding the IRS local standards will be irrelevant. This might disqualify them from bankruptcy if they can’t find room in other areas of their budget to pass the means test.
Arizona’s Motor Vehicle Bankruptcy Exemption
Arizona has a variety of exemptions available for different types of personal property, or any type of property besides real estate. Arizona’s motor vehicle exemption is grouped with personal items in A.R.S. § 33-1125. For one motor vehicle, the property exemption is $15,000, unless the debtor is disabled requiring specialty equipment in their vehicle, in which case the exemption is worth $25,000. For a married couple, the exemption amount can be doubled to $30,000 for one vehicle or applied separately as $15,000 each for two vehicles.
If you have more equity in your vehicle than the applicable property exemption, it could become a major concern in chapter 7 bankruptcy. Any asset that doesn’t have an exemption applied to it in chapter 7 bankruptcy can be taken by the bankruptcy trustee. The trustee can then sell it by auction, keeping a portion as payment and distributing the rest among creditors. The bankruptcy debtor can reimbursed in the amount of the property exemption. You can either file for chapter 13 bankruptcy, use a different form of debt relief, or discuss strategies to keep your vehicle if you qualify for chapter 7 bankruptcy. Schedule your free consultation with an experienced Arizona bankruptcy lawyer today at 602-649-4949.
What If I Own Multiple Vehicles?
If you own multiple vehicles, Arizona’s motor vehicle exemption should give you cause for concern. The exemption only allows a bankruptcy debtor to protect one vehicle as an individual, or two vehicles as a married couple. Unlike many states, Arizona does not offer a wildcard exemption, or a property exemption that can be used on any asset that the debtor chooses. The federal exemptions provide for a wildcard exemption, but unlike many states, Arizona does not allow bankruptcy debtors the option of using the federal exemptions in lieu of state property exemptions. If you have more than one vehicle you don’t wish to lose due to a bankruptcy filing, you should consider filing for chapter 13 bankruptcy instead of chapter 7 bankruptcy.
Chapter 13 bankruptcy doesn’t require a debtor to give up any assets not covered by state property exemptions. If you can pay off all of your claims in a chapter 13 bankruptcy payment plan, owning multiple vehicles shouldn’t become a relevant factor in your case. This means all four categories: bankruptcy fees, secured debts, priority debts, and unsecured debts. But a debtor only needs to be able to prove that they have sufficient income to pay off the first three categories for their payment plan to receive court approval. The debtor could be required to pay extra into the plan based on any non-exempt assets. If their income isn’t high enough, having multiple vehicles could bring their payments too high and disqualify them from clearing debts with chapter 13 bankruptcy.
Stopping Vehicle Repossession by Declaring Bankruptcy
Impending vehicle repossession is a common reason people seek out bankruptcy protection. If you still make payments on your vehicle, your lender likely has few legal requirements to meet before proceeding with a repossession. You can determine exactly what is required for your situation by reviewing your auto loan contract. Most only require the lender to wait until one payment has been missed before they can take that vehicle back. Most will wait a little longer than that to repossess, but auto lenders aren’t bound by the same requirements as mortgage providers are for home foreclosure. But when the automatic stay from filing for bankruptcy is in effect, your auto lender is not allowed to repossess your car, or even call you to speak about your balance owed. This protection lasts until your case is discharged or dismissed, at which point you may have rectified the situation so that your car is safe.
Protect Your Vehicle and Your Sanity By Filing For Bankruptcy in Phoenix and Tucson, Arizona
Your vehicle may be an integral part of your life if you work, go to school, or have other obligations outside of the home. That means that losing your vehicle due to debt could threaten your very way of life. But filing for bankruptcy creates a shield from your creditors, otherwise known as the automatic stay. This protection can last for several months or even years, depending on the chapter of bankruptcy you file. But that protection stops if your case is dismissed due to errors in your petition. The best way to avoid those errors is by retaining a reputable bankruptcy firm for your case. Atlas Bankruptcy Lawyers will help you protect assets and simplify the process of discharging debts with competitive rates and flexible payment plan options. There is no risk or obligation to get started by evaluating your financial situation for bankruptcy with a free consultation. Get scheduled today by calling our office at 602-649-4949.
