Keeping your Car in Bankruptcy
- Peter Schneider
- Feb 27
- 3 min read
Updated: Apr 14
Filing for bankruptcy can be a daunting and overwhelming experience. It involves making difficult financial decisions and can significantly impact various aspects of your life, including your assets. One of the most pressing concerns for many individuals during bankruptcy is whether they can keep their car. For many, a car is not just a means of transportation but a necessity for daily living. Understanding the rules and options available for keeping a car in bankruptcy is essential to navigate this challenging time effectively.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves selling off non-exempt assets to pay off creditors. However, exemptions play a crucial role in determining what assets you can keep. Exemptions are specific laws that protect certain property from being sold during bankruptcy. Want to learn more about the basics of Chapter 7 bankruptcy? Click here to read our blog post on the subject.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows individuals to keep their assets, including their car, while they repay their debts through a court-approved repayment plan. This plan typically lasts three to five years, during which you make regular payments to a bankruptcy trustee. Want to learn more about the basics of Chapter 13 bankruptcy? Click here to read our blog post on the subject.
Motor Vehicle Exemption
Exemptions are critical in bankruptcy proceedings, as they determine what property you can retain. Each state has its own set of exemption laws, and there are also federal exemptions. You can choose to use either state or federal exemptions, depending on which is more favorable to your situation. Most states and the federal system have a motor vehicle exemption that allows you to protect a certain amount of equity in your car. Equity is the difference between the car's value and the amount you owe on it. If your equity in the car is within the exemption limit, you can keep your car under Chapter 7 bankruptcy.
Wildcard Exemption
Some states offer a wildcard exemption that can be applied to any property, including your car. This exemption can be beneficial if your motor vehicle exemption is insufficient to cover all your car's equity.
Reaffirmation Agreement
A reaffirmation agreement is a contract between you and your car lender that reaffirms your commitment to continue making payments on your car loan despite the bankruptcy. By signing this agreement, you agree to exclude the car loan from the dischargeable debts in your bankruptcy case. It is essential to ensure that you can afford the payments before entering into a reaffirmation agreement.
Redemption
Redemption allows you to keep your car by paying a lump sum equal to its current market value to the lender. This option can be advantageous if the car's market value is significantly lower than the amount you owe on the loan. However, coming up with the lump sum payment can be challenging for many individuals.
Let us help you keep your car
Keeping a car in bankruptcy is possible, but it requires understanding the specific rules and options available under Chapter 7 and Chapter 13 bankruptcy. Exemptions play a crucial role in determining whether you can retain your car, and various strategies, such as reaffirmation agreements and redemption, can help you achieve this goal. We can help you navigate the complexities of the process and make informed decisions that best suit your financial situation. Hopefully you are now better informed about keeping your Car in Bankruptcy.
The thoughts, opinions and musings of this blog are those of Peter Schneider, a consumer advocate attorney at Northwest Debt Resolution, LLC. They are just that, his thoughts, opinions and musings and should be treated as such. They are not legal advice. Do you have more questions? We would be happy to answer your questions:
Bankruptcy and debt questions:
Peter Schneider
206-800-6000
Robocalls and Telephone Consumer Protection Act questions:
Nathen Barton
206-800-6000
Fair Debt Collection Practices Act (FDCPA) questions:
Peter Schneider
206-800-6000
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