Can I keep my car in bankruptcy?

Many debtors are able to keep their cars in bankruptcy. The basic strategies for keeping an automobile depend primarily on the value of the car, the existence and amount of a car loan, and the bankruptcy chapter chosen. Please contact our bankruptcy attorney to discuss the particulars of your situation.

Keeping Cars in Chapter 13

In chapter 13, debtors usually propose to keep their property, including cars. If there is a loan associated with a car, the debtor cannot keep the car unless the loan is sufficiently paid by the chapter 13 plan. The age of the loan, amount of payments remaining, and value of the car compared to the loan balance will determine the exact payments required. For more about chapter 13 treatment of cars, please see our bankruptcy and cars page. If a car has value above and beyond what is owed on any loans, and exemptions are not available (see below), that the plan may also have to pay that value to creditors, spread over the life of the plan.

Keeping Cars in Chapter 7

As with chapter 13, keeping cars in chapter 7 focuses on value of the car and the nature of any loans. If the net value of the car (market value minus car loan owed) exceeds the available exemption property allowances, the bankruptcy trustee may seek sell the car. The car loan must also be resolved. While the bankruptcy discharge may wipe out the debtor's personal liability for the car loan, the lien will survive bankruptcy. Therefore, the lender could repossess the car after the bankruptcy has concluded, or during the bankruptcy with court permission. In some cases, the lender will continue to accept payments and not repossess the car. A debtor may also reaffirm a car loan, which will cause the car loan to be as if the bankruptcy had not been filed. A less common procedure called redemption is also available in chapter 7, where a debtor pays the value of the car and removes the lien. Redeeming the car is particularly attractive when the car is worth much less than the loan, but the money to pay the redemption amount is often hard to come by.

If you car is leased instead of financed, the process in bankruptcy is different. For more information, see our post about car leases in bankruptcy.