At our free initial consultations, one of the most frequent concerns that comes up is the fear that a car will be lost by filing for bankruptcy.  Indeed, we frequently hear from people that they would have contacted us sooner except that they were afraThis is a very real and legitimate fear since we all depend on our vehicle to get to work, school, and run errands.  In Montana, a car is invaluable.
Fortunately, in most cases, you will not lose your car by filing bankruptcy in Montana.  In Montana, each debtor gets a $2,500 exemption in one vehicle.  If a couple is filing jointly, they can each take an exemption of up to $2,500 in two separate vehicles, or combine their exemption for a $5,000 total exemption in a single vehicle. 

The exemption applies to the portion of the vehicle that is free and clear of any lien.  So, if you a vehicle worth $2,500, and don't have a loan against it, you can exempt the vehicle and keep it in a bankruptcy.  Or, say you owe the bank or credit union $10,000 and the vehicle is worth $12,500.  You could then exempt the "free and clear" portion of the vehicle and then still owe the remaining $10,000 on the loan.

You shouldn't let the fear of losing a vehicle keep However, bankruptcy does not make the security interest your creditors may have in your home or car go away. There are several ways to work out agreements with your secured creditors so that you can keep your home and car during and after bankruptcy.  We know how important your home and car are to you and know of creative ways so that you can keep them through the bankruptcy process.

In Montana, whether you keep your home after filing a Chapter 7 bankruptcy depends on three factors – do you want to keep it, are you current on the payments, and do you have any equity?

First, you need to decide whether you want to keep the house. If you owe far more on it than it’s worth, your interest rates are too high, or if it needs more work than you can afford to put into it, you might be better off letting it go in the bankruptcy and buying again in a few years. In Montana, equity has generally maintained throughout the housing crisis, meaning most Montanans want to keep their home.

Second, if you file for bankruptcy when you’re behind on the mortgage, your lender may either demand that you get caught up right away or ask the court for permission to start the foreclosure process. This creates some risk and is better not left to the discretion of the bank. If you are behind it would be wise to talk to an experienced Montana bankruptcy attorney to discuss either getting caught up on payments prior to filing the chapter 7, or to consider a chapter 13 bankruptcy which would allow you to repay over a three or five year period.

Third, the bankruptcy trustee will be interested in whether you have any equity in the home. In Montana, debtors can keep up to $250,000 in equity under the Homestead Exemption.  So, for example, say you own a home that is worth $200,000 and only owe $100,000 on your mortgage, you will be entitled to protect the full $100,000 in equity in your home.  Rarely does a Montana bankruptcy petitioner have equity in their home beyond the limit. 

When considering whether to file for Chapter 7 bankruptcy in Montana, it’s important to remember that all of your dischargeable debts will be wiped out. This includes not just credit card and medical bills, but also the debt you owe on your car and your home. Even though you will no longer owe any money on your home, whether you keep it after filing bankruptcy is largely up to you. The three most common options for your house after bankruptcy are to reaffirm, “stay and pay”, or surrender.

Reaffirm – Reaffirmation is a process in which someone who has filed bankruptcy asks the judge to waive the discharge of a particular debt.  With a mortgage, you agree that you will continue to make your payments on the house, and that you continue to owe the debt.  As long as you continue to make payments, the lender can’t foreclose.

Stay and Pay –To “stay and pay” means to continue paying on the debt without reaffirming. Essentially, you are making payments on a debt that you no longer owe. While this option doesn’t technically appear in the Bankruptcy Code, it is still the most common because most lenders are perfectly happy to let you remain in the property as long as you continue to pay them. They will continue to keep track of what you pay, and when you have paid the full amount that was owed before bankruptcy, they will sign the title over to you. You can even sell the property, although a refinance is impossible as there’s no debt left to work with. The primary advantage to not signing a reaffirmation agreement is that if you are no longer able to pay, the lender can foreclose but won’t be able to sue you for the deficiency.

Surrender – If you don’t want to keep your home, or if the lender is demanding that you sign a reaffirmation but you don’t think it’s in your best interest (for example because you owe far more than it’s worth, or the interest rate is too high), you may simply hand the keys over to the lender and be done with it. The chapter 7 bankruptcy frees you from the debt associated with the home, so you can rent for a few years and buy again when you’re ready without the threat of the lender coming after you. How assets are treated in bankruptcy can be a complex issue, so it’s always best to contact an experienced Billings, Montana bankruptcy lawyer for an analysis of your case.