Bankruptcy can offer relief from many of your debts; however, in some circumstances you will have to sell certain assets to repay those debts. Depending on what type of bankruptcy you decide to file, you may or may not be able to keep your car.

Can I Keep My Car If I File Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is also known as reorganization bankruptcy. It allows you to establish a three- to five-year repayment plan that will cover most of your debts.

In most cases, you can keep your car if you file Chapter 13 bankruptcy. You will not be required to liquidate or sell your car to repay your car loan. Instead, any past due payments as well as future debt payments will be incorporated into your repayment plan.

Can I Keep My Car If I File Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is also known as liquidation bankruptcy. It requires you to sell assets to repay debt such as car loans. Many of your unsecured debts will be discharged instead of requiring repayment.

However, you may be able to file an exemption to have your car excluded from your assets to be sold so that you can keep it. Most states offer exemptions for motor vehicles, allowing you to keep your car through Chapter 7. There is also a federal exemption that may be used. However, the bankruptcy court will consider the value of the car as well as your current loan.

To determine if your car would qualify for an exemption, you need to determine how much equity you have in the car. To figure out the equity, subtract the value of your car from the loan balance. If the equity is less than the maximum allowable exemption in your state, then you can keep it. You may be able to combine exemption amounts in some states.

Will Bankruptcy Stop Repossession of My Automobile?

Bankruptcy will temporarily stop all repossession activities by creditors. When you file for bankruptcy, the bankruptcy court will issue an automatic stay. This automatic stay will halt all collection activities, including repossession of your car.

If you have filed a Chapter 13 bankruptcy, you will have time to incorporate your car loan into your repayment plan. If you file Chapter 7, you will need to determine if you are going to sell the car to repay your debts, give the car back to the lender, or claim the automobile as an exemption.

In any event, filing for bankruptcy will give you some time to decide what to do with your vehicle.

What Happens to My Auto Loan in a Bankruptcy?

Your auto loan may remain intact if you file Chapter 13. However, if you file Chapter 7, the lender may repossess your car if you do not keep up with your payments.

You may opt to repay your auto loan in one lump sum, thereby resolving the debt. If you choose this option, then you won’t have to hand over your car to the lender or sell it to repay the debt.

You may also sign a reaffirmation agreement, which commits you to making monthly payments as if you hadn’t filed for bankruptcy. The reaffirmation agreement will prevent your car from being taken from you; however, you will have to make payments according to the new terms. You can cancel or rescind the reaffirmation agreement within 60 days or before the court gets involved if you change your mind. If you do cancel the reaffirmation agreement, then you will have to return the car to the lender or sell the car as you would in any bankruptcy proceeding.

How to Protect Your Car from Bankruptcy

The best way to protect your car from bankruptcy proceedings is to own it outright. Then, you won’t have a lender coming after you to repossess it.

A state or federal exemption can protect your vehicle during bankruptcy as well. The equity that may be exempted changes from year to year and is different among states. Thus, you will need to check with your bankruptcy lawyer to determine if your car qualifies for an exemption.

If you have a high value car, you may be forced to sell it to pay off debts. However, some states allow you to combine exemptions. You need to work with a bankruptcy attorney who knows bankruptcy laws in-depth so that you are able to keep your car if that is your choice.

Understand What Will Happen to Your Car in Bankruptcy

Before you file Chapter 7 or Chapter 13, you should clearly understand what will happen to your car. You may have multiple options depending on ownership status and value of your vehicle.

If you want to keep your car, you need to look at options to catch up on payments and maintain a good standing with the lender. However, you may choose to give the car back to the lender or sell your vehicle to repay debts. Many factors must be considered to determine what path is best for you.

An experienced bankruptcy law firm can guide you through the legal process. Call Clark & Washington at (865) 689-1777 to find out what may happen to your car in a bankruptcy.