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California drivers score huge bankruptcy win

By Cathy Moran

car after bankruptcy

California law, effective January 1, 2023, will assure those who file bankruptcy that they can keep their car as long as they stay current on payments. The onerous requirement that a debtor give up their discharge as it pertains to the car lender is eliminated.

The same bill, SB 1099, increases the exemption for equity in a car (or cars) to $7500, from the previous $3525.

Ride-through axed in 2005

This change in the law reverses a provision of the bankruptcy “reform” act of 2005 that eliminated the right to have a car loan “ride through” a bankruptcy. The 2005 bankruptcy bill allowed lenders to treat the mere act of filing bankruptcy as a breach of the loan agreement.

Before 2005, just filing bankruptcy could not be treated as a default under the loan. So long as payments were current, the loan, and the lien on the car, remained unchanged. If after the bankruptcy discharge, the borrower fell behind on car payments, the lender could repossess the car, but couldn’t sue the borrower for any shortfall between the auction value of the car and the loan balance.

Ride-though restored

Under the new law, ride through is again the law of California. Keep paying on the car, and you can keep driving.

Eliminated as a result of this legislation is the need to reaffirm the car loan, and give up the discharge as to the car loan. The requirement to reaffirm the loan to be certain the car wouldn’t be repoed after bankruptcy put debtors in a horrible position. Waive the discharge to be sure of keeping the car, or risk waking up some morning and finding the car towed, even though you were current on the payments.

Kudos to California State Senator Bob Wieckowski for introducing the bill, to NACBA who promoted it in the legislature and to Governor Newsome for signing the bill.

SB 1099 made other, significant improvements to California exemptions that we’ll examine in later posts.

More

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Filed Under: Strictly California Tagged With: 2022, california exemptions, reaffirmation, ride-through

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

Bankruptcy Basics

About The Soapbox

You’ve arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said “try”).

Here, I allow myself to tell stories and express strong opinions. We dig deeper into how to consider bankruptcy and navigate a bankruptcy case.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

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