Filing for Bankruptcy While Keeping Your Car: A Guide

Filing for Bankruptcy While Keeping Your Car: A Guide

Filing for bankruptcy can feel overwhelming, and for many, the prospect of losing valuable assets, such as a car, only adds to the stress. However, it’s possible to file for bankruptcy and still keep your car. This guide will provide an overview of how you can maintain possession of your vehicle during this challenging time.

Understanding the Types of Bankruptcy

Firstly, it’s important to understand the different types of bankruptcy filings available:

• Chapter 7 Bankruptcy: Often referred to as a liquidation bankruptcy, it involves selling off non-exempt assets to pay creditors. However, certain personal assets, possibly including your car, can be exempted.
• Chapter 13 Bankruptcy: This is a reorganization bankruptcy where you follow a court-approved repayment plan to settle debts over three to five years. Keeping your car under Chapter 13 is generally more straightforward, provided you can keep up with the repayment plan and ongoing car payments.

Exemptions and Your Car

In Chapter 7 bankruptcy, certain personal assets are considered exempt, meaning you can keep them. Exemptions vary from state to state but often include personal vehicles up to a certain value. To keep your car, its equity – the car’s current value minus any loan balance – must fall below the state’s exemption limit.

If your car equity exceeds the exemption amount, you might still have options:

• Pay the non-exempt equity amount to the bankruptcy estate.
• Utilize a wildcard exemption if your state offers it, which can be applied to any property, including your car.

Reaffirmation Agreements in Chapter 7 Bankruptcy

Another option to keep your car is to enter into a reaffirmation agreement with your lender, effectively opting the debt out of bankruptcy discharge. This means you agree to continue making payments to retain possession of the car. It is crucial to ensure that these payments are manageable within your budget, as defaulting on a reaffirmed loan can lead to repossession.

Chapter 13 Bankruptcy and Your Car

In Chapter 13 bankruptcy, keeping your car is often more straightforward. Your repayment plan will include your car loan, allowing you to spread out payments and potentially reduce the interest rate. As long as you adhere to the repayment plan, your vehicle remains in your possession.

Consult a Bankruptcy Attorney

Bankruptcy laws are complex, and exemptions, in particular, can greatly vary from state to state. It’s recommended to consult with a bankruptcy attorney who can provide advice tailored to your situation. An attorney can help you understand which type of bankruptcy filing is best for you and how to navigate the process while keeping your most essential assets, like your car.

Conclusion

While filing for bankruptcy can be a daunting prospect, it doesn’t always mean you have to give up everything, including your car. With the right strategy, whether it’s through exemptions, reaffirmation agreements under Chapter 7, or a repayment plan under Chapter 13, you have a fighting chance to retain your vehicle. Always consider speaking with a professional to guide you through your options and what’s best for your specific circumstances.