Can You Keep A Car Through The Chapter 7 Bankruptcy Process?

It is often possible to keep your car when you file for Chapter 7 bankruptcy, but there are specific conditions and steps you need to consider. Here’s how it generally works:

1. Exemptions:

• Each state has its own set of bankruptcy exemptions that determine what property you can keep when you file for Chapter 7. There is typically a motor vehicle exemption that allows you to protect a certain amount of equity in your car.
• If the equity in your car is less than the exemption limit, you can usually keep your car. Equity is calculated by subtracting any liens or loans from the market value of the vehicle.

2. Loan Repayment:

• If you’re financing your car and you wish to keep it, you’ll need to continue making payments on the loan. Chapter 7 doesn’t eliminate the lien that the lender has on the vehicle.
• You may need to reaffirm the car loan, which is a legal process that excludes the loan from the bankruptcy discharge. By reaffirming, you agree to continue paying the loan under the original terms, acknowledging that you remain liable for the debt.

3. Leased Vehicles:

• If you’re leasing your car, you can typically choose to continue the lease and keep the car, or you can surrender the car and discharge the lease obligation in the bankruptcy.

4. Redemption:

• Redemption is another option where you can pay the lender a lump sum equal to the current market value of the car, regardless of how much you owe on the loan. This can be beneficial if you owe more than the car is worth, but it requires coming up with a significant amount of cash.

5. Surrendering the Vehicle:

• If you decide not to keep your car, or if it’s not feasible to do so, you can surrender the vehicle to the lender. The outstanding debt on the car loan will typically be discharged in the bankruptcy.

It’s important to carefully evaluate your options and consider the implications of each choice. The right decision will depend on your personal circumstances, including the value of your car, the amount of any loan or lease obligations, and your ability to continue making payments. Consulting with a bankruptcy attorney can provide you with guidance tailored to your specific situation and help you make an informed decision.

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