How keep and pay works in a personal bankruptcy

Louisiana residents who seek debt relief by filing for bankruptcy can keep assets that they are making payments on, such as cars and homes, by using a bankruptcy exemption called keep-and-pay. These arrangements must be approved by the court, but that is rarely an issue as long as they are made in good faith, the payments are likely to be paid, and creditors do not object. When the asset involved is a vehicle that a bankruptcy filer uses to earn a living or get to and from work, court approval is extremely likely.

Why creditors agree

Banks do not operate in the real estate or automobile sectors, and they will usually prefer to continue to receive payments under a keep-and-pay arrangement than repossess or foreclose on an asset. This is especially true when the asset involved is a motor vehicle with negative equity. This means that the amount recovered from auctioning off the vehicle will not be enough to pay off the loan. Homes rarely have negative equity, but they can take months to sell.

Bankruptcy exemptions

The amount of equity in a keep-and-pay asset must be no more than the relevant bankruptcy exemption. The federal government and Louisiana both have bankruptcy exemptions, but the Pelican State’s are more generous. In Louisiana, you will be able to protect $35,000 in home equity and $7,500 in motor vehicle equity in personal bankruptcy. The federal government provides $27,900 in home equity protection and $4,450 in motor vehicle equity protection.

A fresh start

Bankruptcy exemptions like keep and pay shows that the federal Bankruptcy Code was drafted to help people escape from crushing debt and give them the opportunity to start again. If you are struggling with an unmanageable financial situation, keep and pay could allow you to keep your home or car if you file a personal bankruptcy petition.