Can You File for Bankruptcy and Keep Your Car?

Facing substantial financial stress can be debilitating. You might be unsure of what to do and what your best course of action entails. If you need a financial refresh, bankruptcy may be your best solution.

When considering filing for bankruptcy, it is common to wonder what happens to your assets, most importantly your vehicle. In many cases, depending on the chapter of bankruptcy you file, the value of your vehicle, and the status of your car loan, you may ‌keep your car in bankruptcy. 

Filing for bankruptcy can be intimidating. Fortunately, a bankruptcy attorney can provide guidance.

Considerations When Determining What Will Happen to Your Car During Bankruptcy

If you’re considering filing for bankruptcy, and you’re concerned about what might happen to your car, consider these details:

• Do you own or lease your vehicle?
• Do you have a car loan?
• What is the current value of your vehicle?
• What type of bankruptcy will you file?
• Are there any exemptions that may protect your vehicle in your state?

These can be challenging questions to answer. A bankruptcy attorney will ask these and other important questions when determining the best course of action for you and your goals.

What Is Bankruptcy?

Bankruptcy benefits those facing serious financial struggles and paves a path for a financial refresh.

Bankruptcy is a legal process that allows an individual to liquidate assets to repay their outstanding debts, create an approved repayment plan to slowly repay their debts, or discharge debts altogether. 

Federal law dictates the bankruptcy process. What you can expect from your bankruptcy will depend on the chapter you file. There are six types of bankruptcies in the US: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, and Chapter 15. Chapter 7 and Chapter 13 are the most common.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy discharges many unsecured debts, meaning you no longer have to pay for them. These unsecured debts can include credit card and medical bills. Plenty of debts are non-dischargeable, however, so Chapter 7 does not rid you of all your debts entirely.

Chapter 7 discharges many debts, but if you have enough assets, you’ll need to liquidate your assets to repay debts as well.

Because Chapter 7 may require selling some of your assets, many wonder what happens to your car if you file this type of bankruptcy. You may or may not lose your car—this all depends on your state’s laws and whether your car falls under an exemption.

Determine how much equity your car has by subtracting the amount you owe for your vehicle and its current value. Once you’ve determined your equity, look at your state’s exemption laws. If your vehicle has less equity than the exemption limit, you won’t lose your car.

For example, if your state’s exemption limit is $4,000 and you owe $2,500, your vehicle is protected.

If your vehicle’s equity exceeds the limit, several things can happen, depending on your state’s laws:

• The bankruptcy trustee can sell your car, giving you the exempted amount and using the rest to pay off your debts.
• You can surrender your vehicle to the lender, removing any responsibility under your bankruptcy.
• If you’re behind on car payments, the lender can repossess the vehicle, unless you take action to get back in good standing.

If you’re considering filing a Chapter 7 bankruptcy but are unsure of what that means for your vehicle, a bankruptcy attorney can review your case and give you a better idea of what you can expect.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also called the wage earner’s plan, allows you to create a debt repayment plan and submit it to the court for approval. These plans usually give you three to five years to repay your debts. Once you complete your repayment plan, you’ll receive a discharge order and officially stop paying those debts.

Unlike a Chapter 7 bankruptcy, you won’t have to liquidate your assets to repay your debts, so you’ll get to keep your property and assets.

If you own your vehicle outright, you’ll have nothing to worry about. If you have a car loan, that’s considered a secured debt, because the lender has your car as collateral. 

If you owe more on your car than it’s worth, Chapter 13 can help reduce what you owe. If you’re behind on payments but qualify for a repayment plan, you may ‌keep your vehicle if you’re able to get up to date on your payments. 

Most times, there are greater chances of keeping your vehicle with a Chapter 13 filing. 

What Happens to Car Payments When You File for Bankruptcy?

What happens to your auto loan depends on the chapter of bankruptcy you file and whether you’re in good standing.

In a Chapter 7 bankruptcy, if you’re not up to date on your auto loans, the lender may repossess your vehicle. When you don’t keep up with car payments, this removes any exemption protection. 

Even if you’re behind on your auto loan and file for Chapter 7, you may ‌keep your vehicle if you make one lump sum payment to pay off the loan, or by reaffirming the loan. Reaffirming means you’re making a new agreement with your lender, confirming your intent to keep making payments on the loan.

If you file Chapter 13 and are delinquent on your auto loan, a repayment plan can help get you caught up. If you’re current on your payments, a repayment plan can help reduce what you owe in some circumstances.

Consequences to Your Credit

Bankruptcy affects your credit. In most cases, a Chapter 7 bankruptcy stays on your credit record for 10 years from ‌filing, and Chapter 13 for up to seven years after filing.

There can be additional repercussions, depending on how you handle your vehicle in your bankruptcy. 

If your lender repossesses your vehicle, this will appear in your credit report. Repossessions commonly remain on a credit report for seven years.

Should you decide to surrender your vehicle to avoid dealing with it during your bankruptcy, it can also reflect this in your credit report. 

Before deciding regarding bankruptcy and your vehicle, discuss your situation with a bankruptcy attorney. Always take your credit seriously, as the decisions you make today can affect you in your future. 

How Can a Bankruptcy Lawyer Help?

A bankruptcy lawyer can help you sort out your bankruptcy. They’re knowledgeable, experienced, and well-versed in the laws pertaining to your case.

A bankruptcy attorney can handle the most important aspects of your case, including:

• Answering your questions and addressing your concerns
• Educating you on the bankruptcy process and laws
• Deciding which chapter of bankruptcy best suits your needs
• Determining whether any exemptions exist that may help you
• Creating a course of action to protect your property and assets
• Drafting and filing required paperwork
• Representing you when needed

The bankruptcy process can be overwhelming, and you’ll likely encounter many doubts and fears along the way. A skilled lawyer can give you peace of mind and help make the bankruptcy process much smoother and less intimidating.

Consider an Unbundled Lawyer for Your Bankruptcy

If you’re considering bankruptcy, ‌speak to a bankruptcy lawyer. While a traditional bankruptcy attorney can provide much-needed guidance, they also come with a high price tag. 

An unbundled lawyer has the same skills and education as a traditional lawyer, but the way they handle their services differs. An unbundled lawyer is available to you when you need them most. While a traditional bankruptcy attorney will handle your case from beginning to end, an unbundled lawyer can be tasked to only handle the most important parts of your case. 

If you feel confident handling a majority of your bankruptcy case and would only like the guidance when needed, an unbundled lawyer is the answer. Unlike traditional bankruptcy lawyers, an unbundled lawyer’s services start between $500 and $1,500.

Unbundled Legal Help believes high quality legal representation should be accessible to everyone. Whether you need limited help or full representation, we have a lawyer for you.