You have probably saved for years to get your boat; however, a recent financial crisis such as a job loss or divorce has made it hard to keep up with the payments. You hardly have enough funds to pay your monthly expenses and debts. You are probably thinking of filing for Chapter 13 bankruptcy – but can you keep your boat?
Chapter 13 is a personal bankruptcy proceeding where you undertake a reorganization of your finances under court supervision. Unlike chapter 7, you will not need to liquidate all your assets. You must submit a reorganization plan that can safeguard your assets against repossession, which can also include your boat.
Getting past the preliminary requirements in Chapter 13 bankruptcy cases is the beginning; you also need to know if you can afford the payment plan. Here are some of the factors considered.
Debt limits – Chapter 13 has debt limitations, and if your overall debt burden is too high, you are ineligible.
Personal status – Only individuals or sole proprietors can qualify for a Chapter 13 debt discharge, not small businesses or companies. However, as a small business owner, you can apply for bankruptcy individually and include personally guaranteed business debts in your plan.
Income requirements – when you file, you need to prove you can afford to pay your monthly house expenses and the monthly payment plan. Else the court won’t approve your payment plan.
Boats And Bankruptcy: Can I Keep My Boat In Chapter 13?
When you apply for bankruptcy, you can exempt or protect your assets, such as your car or boat, if you can find an exemption for them. Exemptions allow you to protect your property from seizure but only to a certain dollar value. Without exemptions, a bankruptcy trustee can sell your property to pay off your unsecured creditors; however, the proper use of exemption law can prevent this.
There are federal and state exemptions, and depending on where you live, you can choose between both statutes, or you must use state exemptions only. Exemptions allow you to keep the assets you need to maintain your home and job. They also help determine how much you must pay in your Chapter 13 repayment plan.
In Chapter 13, you can retain your assets, including your boat, even though it’s considered a non-essential item.
You can keep all your property, including your boat, in Chapter 13; however, finding an exemption for them is harder. If you dwell in a state with a boat or recreational vehicle exemption, you can exempt your boat using this law. In states without these bankruptcy exemptions, you can keep your boat if it’s your primary residence, such as a houseboat. As such, you can claim it under the homestead exemption.
Alternatively, you can use the tools of the trade exemption available under federal or state exemption law. If you use your boat primarily or exclusively for business, you can use this exemption since it is related to your work.
Another possible way you can keep your boat in Chapter 13 is through the wildcard exemption. Under this exemption, you can apply to keep whatever asset you want, unlike in other exemptions that apply to specific items. In states where this exemption is allowed, you can apply it to keep your boat.
You can use the wildcard exemption on its own or in combination with other exemptions. The amount covered varies depending on the state, but it can also include any unused homestead exemptions up to a certain amount.
Since boats are considered non-essential items in bankruptcy, you have to prove they are reasonable if you want to keep them. The ‘reasonable’ test determinant is the value of your boat. For instance, in Florida, you can use the wildcard exemption to claim up to $4000. So if your boat costs less than that, you can claim it. However, this is something your bankruptcy attorney will have to consider on a case-by-case basis.
If your boat was financed through a loan, you could keep it as long as it’s reasonable. In Chapter 7 bankruptcy, it’s easier to keep your boat after you file your case. The trustee will usually not object to this as long as you keep making your payments. This means you need to include your boat loan repayments in your plan. You might need to reaffirm your loan.
You can also keep your financed boats in Chapter 13, but the ‘reasonable’ test is a lot stricter. With a small boat loan, the bankruptcy trustee can allow you to repay it through the payment plan easily. However, larger boat loans can pose a problem. You might be allowed to keep your boat if y0u agree to pay a higher percentage back to your creditors. This can greatly increase your Chapter 13 payments.
Keeping your boat after filing for bankruptcy can be tricky. If you cannot protect your boat with an exemption or the exemptions don’t cover the boat’s full value, your bankruptcy trustee can seize them. It’s not all bad. After the boat is sold, you can get the amount protected by exemptions back, while the rest goes to your creditors. However, if you can bear parting with your boat, consider trying any of the methods mentioned above.
If you are still wondering where to start, contact the legal team at the Van Horn Law Group. We can assist you in making a knowledgeable decision and pick the best option that will give you the best chances of keeping your boat.
We understand that there’s no one-size-fits-all solution, and any solution we offer needs to be tailored to your specific financial situation. Call us today and get personalized service, whether you just want legal advice or require full-service assistance from start to finish.
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