Should I Pay My Vehicle Off Before Filing?
Like all good bankruptcy questions, the answer depends on your situation. At first blush, it seems like a good idea. If you are filing Chapter 7 Bankruptcy and you pay your car off prior to filing you won’t have to deal with the reaffirmation process. If you are filing Chapter 13 Bankruptcy you won’t tie your car up in the bankruptcy for the next three to five years.
However, the Means Test sometimes throws conventional thinking out the window. The Means Test determines whether you will qualify for a Chapter 7 Bankruptcy, or what you will repay to unsecured creditors in a Chapter 13 Bankruptcy. The Means Test includes a calculation that allows you to deduct an expense allocation to the remaining car payment. This deduction (no matter how large or small) could determine whether you will qualify for a Chapter 7 Bankruptcy.
Every case is unique and if you are contemplating filing bankruptcy you should meet with an experienced bankruptcy attorney to determine what is in your best interest.