If you are going through bankruptcy, you may be wondering about your car.  Will you be able to keep your car in bankruptcy? In some cases, you can protect your car using the allowable bankruptcy code exemptions.  The answer will depend on your particular situation, the state you live in, and the type of bankruptcy you filed (Chapter 7 versus Chapter 13).

Many borrowers assume that their car can’t be seized to pay their debts.  Unfortunately, in many states, you can lose your car unexpectedly if you’re not aware of the laws, and if you don’t have a knowledgeable bankruptcy attorney. Let’s look at the differences between Chapter 13 and Chapter 7 bankruptcy and how the different chapters affect whether you get to keep your car.

Under Chapter 13 bankruptcy, you must repay the entire car loan if you bought a car within 910 days of the bankruptcy filing.  For example, if you had an outstanding balance of $7,000 on a car loan with a Kelley Blue Book value of $5,000 you would be required to pay the entire $7,000 balance if the car was purchased less than 30 months of filing.  If you want to keep your car in a Chapter 13 bankruptcy, you must pay the full loan amount, rather than the market value of the car.

Now let’s look at a Chapter 7 bankruptcy (liquidation of assets).  Can you keep your car when filing a Chapter 7 bankruptcy?  Under this type of bankruptcy, cars are harder to hold onto since the law requires paying the lender the retail replacement value of the car.  The retail replacement value of your car is generally higher than the private sale value (Kelly Blue Book).  If you have pledged your car as security for a debt, or if you are financing or leasing a vehicle, you usually have three options for secured car loans when you file Chapter 7 bankruptcy.  You can choose to reaffirm, redeem, or surrender your car.  Each of these options has specific procedures that must be followed.

If you are leasing your car when you file Chapter 7 bankruptcy, you can choose to continue making the monthly payments, or surrender your car back to the lender. If you surrender your leased car, any obligation under the lease will be eliminated in your Chapter 7 bankruptcy case.

An experienced bankruptcy attorney can advise you about the effects bankruptcy will have on your car and other personal possessions.  You may find that your car is protected under certain exemption laws within your state.  Depending on your financial situation and state laws, your bankruptcy attorney may be able to offer additional options to protect your personal property.