What Happens to Your Car in a Bankruptcy

In a bankruptcy, one of the main concerns to any consumer is losing property.  Most consumers in financial hardship have significant debt they are unable to pay, but many also have valuable property – such as a car – which can be very difficult to give up. If you are considering bankruptcy and own a car, you will want to understand how vehicles are dealt with in different forms of bankruptcy.

Do You Own the Car Fully?

Cars owned fully by the consumer – meaning the entire value of the car has been paid for – can usually be held onto after filing bankruptcy. In a Chapter 7 bankruptcy, property exemptions allow consumers to hold onto property that is considered essential. Federals rules allocate an exemption for the car itself up to a certain value. In addition, other exemptions such as “tools of the trade” may be applicable to the car. If exemptions will cover the entire current value of the car, the consumer can keep the car after they file for bankruptcy. In a Chapter 13 bankruptcy, you should be able to keep the car no matter what, as long as you own it fully.

Car Loans and Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, cars that the consumer does not fully own will not qualify for exemptions. In some cases, however, you can still keep a loaned car after filing bankruptcy. In a process called reaffirmation, it is sometimes possible to negotiate a new loan with the lender in order to keep paying for the car. Reaffirmation agreements must be approved by the creditor and by the court. Other than reaffirmation, the only other option is to pay for the value of the car upfront, which could allow you to keep it under exempt property law.

Car Loans and Chapter 13 Bankruptcy

Chapter 13 bankruptcy grants consumers with a repayment plan that allows them to repay “eligible” debts under the guidance of the court. If the car loan is less than 910 days old, the car will be fitted into the repayment plan and you will be able to keep it as long as you can pay the terms organized the court. If the car loan has lasted more than 910 days, you also have the option to pay for the current value of the car upfront.

Getting Help from a Lawyer

Before you go into any firm bankruptcy, you should fully understand what will happen to your property, especially your car. A bankruptcy lawyer will be the best source of help for you if you have questions about cars and bankruptcy. More than that, a bankruptcy lawyer will be able to help negotiate with your car lender and present your case to the court, which can lead to a more favorable result.