When people consider filing for bankruptcy, one of the biggest concerns is whether we can keep my carin bankruptcy. For many, a car is more than just a mode of transportation—it’s a necessity for work, family responsibilities, and daily life. Losing it could make financial recovery even harder. Fortunately, bankruptcy laws provide specific protections that may allow you to keep your vehicle, depending on your situation, the type of bankruptcy you file, and your state’s exemption laws.
In this blog, we’ll explore how
keeping your car works in bankruptcy, the difference between Chapter 7 and
Chapter 13, and what exemptions may apply to help you protect your vehicle.
Why
Your Car Matters in Bankruptcy
Most people considering bankruptcy
already face financial stress, and the thought of losing their car only adds to
that burden. Bankruptcy, however, is designed to give you a fresh financial
start, not to leave you stranded. That’s why the law includes provisions like
the motor vehicle exemption, which allows you to protect a certain
amount of equity in your car.
Chapter
7 Bankruptcy and Your Car
In a Chapter 7 bankruptcy, also
known as a liquidation bankruptcy, your non-exempt assets can be sold to repay
creditors. However, exemptions play a big role in protecting property like your
vehicle.
- Motor Vehicle Exemption: Each state sets its own exemption limit, which
determines how much equity you can protect in your car. For example, if
your state allows a $5,000 exemption and your car’s equity is $4,000, you
can keep your car.
- Equity Matters:
If your car loan balance is higher than the vehicle’s value, you may not
need to use much of the exemption since the lender already has a secured
interest.
- Reaffirmation Agreement: If you are current on your car payments, you may
reaffirm the loan—essentially agreeing to keep paying despite the
bankruptcy. This allows you to keep the car.
In short, under Chapter 7, you can
often keep your car in bankruptcy if your equity is within the exemption
limit and you’re able to keep up with payments.
Chapter
13 Bankruptcy and Your Car
Chapter 13 bankruptcy works
differently. Instead of liquidation, it creates a repayment plan that lasts 3–5
years. This plan can be very helpful if you’re behind on car payments or
worried about repossession.
Here’s how it works:
- Catch-Up on Payments:
Missed car payments can be included in your repayment plan, giving you
time to get back on track.
- Cramdown Option:
If your car is worth less than what you owe and you purchased it more than
910 days before filing, you may reduce the loan balance to match the car’s
current value.
- Protection from Repossession: As long as you’re making payments under the plan,
creditors cannot repossess your vehicle.
For many people, Chapter 13 offers
the most reliable way to keep their car in bankruptcy, even if they are
behind on payments.
Factors
That Determine If You Can Keep Your Car
Several factors influence whether
you’ll be able to hold onto your car during bankruptcy:
- Equity in the Car
– The difference between your car’s value and what you owe.
- Exemption Laws
– Vary by state, but they decide how much equity you can protect.
- Car Loan Status
– Being current on payments makes it easier to keep the car.
- Type of Bankruptcy Filed – Chapter 7 relies heavily on exemptions, while
Chapter 13 gives you more flexibility through repayment.
Alternatives
to Surrendering Your Car
Even if you find yourself in a
situation where keeping your car seems difficult, there are alternatives worth
considering:
- Redeeming the Vehicle: Pay the current market value of the car in a lump sum,
regardless of the loan balance.
- Reaffirmation Agreements: Commit to ongoing payments and keep the vehicle.
- Filing Chapter 13 Instead of Chapter 7: If you’re behind on payments, Chapter 13 could give
you the breathing room you need.
Why
Legal Guidance Matters
Bankruptcy law is complex,
especially when it comes to exemptions and asset protection. The decision to
file Chapter 7 or Chapter 13, and whether you can keep your car in
bankruptcy, depends on your specific financial situation. Working with an
experienced bankruptcy attorney ensures you don’t lose essential assets unnecessarily.
At Recovery Law Group, our
attorneys guide clients through the bankruptcy process and help them understand
their rights when it comes to vehicles, homes, and other property.
Final
Thoughts
If you’re considering bankruptcy,
the good news is that in many cases, you can keep your car in bankruptcy
through exemptions, repayment plans, or reaffirmation agreements. The key is
knowing your rights and making informed decisions based on your financial
situation.
Bankruptcy doesn’t have to mean
losing everything—it can be the fresh start you need while still holding on to
the assets that matter most in your daily life.
