Filing for bankruptcy can be a powerful tool to regain financial stability, but it often raises concerns about how it might affect personal assets, such as your car. Many individuals facing bankruptcy wonder if they can keep their vehicle during bankruptcy. The answer depends on several factors, including the type of bankruptcy you file and the exemptions available in your state. This blog post explores the conditions under which you can keep your car when filing for bankruptcy and offers insights into how different types of bankruptcy affect vehicle ownership.

Understanding Bankruptcy Types

1. Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of non-exempt assets to repay creditors. However, you may be able to keep your car if it is considered exempt under state laws. The exemptions vary by state, but they generally allow you to protect a certain amount of equity in your vehicle.

2. Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves creating a repayment plan to pay off your debts over three to five years. In this type of bankruptcy, you may be able to keep your car as long as you continue making payments according to the plan. Unlike Chapter 7, Chapter 13 allows you to keep your assets while repaying your debts.

Keeping Your Car in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, whether you can keep your car depends on the following factors:

1. Exemption Limits

Each state has its own exemption laws determining how much equity you can protect in your vehicle. For example, if your state’s exemption allows you to protect up to $5,000 of equity in your car, and your vehicle’s equity is valued at $3,000, you can keep the car without issue. However, if your car’s equity exceeds the exemption limit, the bankruptcy trustee may sell the vehicle to repay creditors.

2. Car Loan Status

You must continue paying to retain the vehicle if you have a car loan. If you fall behind on payments, the lender may repossess the car regardless of your bankruptcy status. If you’re current on your payments and your car’s equity is within the exemption limit, you are likely to keep your car.

3. Reaffirmation Agreements

In some cases, you may sign a reaffirmation agreement with your lender. This is a legal contract where you agree to continue paying for your car loan and reaffirm your obligation to repay the debt. This option is available in Chapter 7 bankruptcy but should be considered carefully, as it may lead to additional financial strain.

Keeping Your Car in Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, you can generally keep your car if you continue making payments. Here’s how it works:

1. Repayment Plan

Under Chapter 13, you propose a repayment plan to repay your debts over three to five years. Your car payments are included in this plan. As long as you make the required payments and adhere to the plan, you can retain ownership of your vehicle.

2. Vehicle Equity and Plan Requirements

In Chapter 13, you must pay creditors equal to the value of your non-exempt assets, including your car’s equity. If your car’s equity is significant, your repayment plan must account for this. Ensure that your plan includes sufficient payments to cover the car’s equity.

3. Car Loan and Arrearage

If you are behind on car payments, Chapter 13 allows you to include the arrears (past-due amounts) in your repayment plan. This means you can catch up on missed payments over the course of the bankruptcy plan while keeping your car.

Keeping Your Car While Navigating Bankruptcy

Filing for bankruptcy doesn’t necessarily mean you must give up your car. By understanding the specifics of Chapter 7 and Chapter 13 bankruptcy and the exemption laws in your state, you can make informed decisions about how to protect your vehicle.

To navigate the complexities of bankruptcy and determine how it affects your car and other assets, contact Winterbotham Parham Teeple, a PC at 800.400.9000. Our experienced bankruptcy attorneys can provide personalized guidance to help you keep your car and achieve financial relief.