For example, say your car is worth $3,500, and the exemption for motor vehicles in your area is up to $6,000. If you are filing for bankruptcy under Chapter 7, you may be able to keep your car by using the exemption for it. Furthermore, a seasoned bankruptcy expert will have the experience to guide you through the process while allowing you to keep the maximum amount of what you own and discharge the most amount of debt. And if the market value of a vehicle you own outright is less than the … If you elect to reaffirm the debt, and the lender agrees, you will be obligated to make the payments on your car just like you did prior to your Chapter 7. Especially if you have a terrible interest rate on the car—and if you can put your hands on a junker—give them the car back. If you can protect your car from the bankruptcy trustee, you must choose one of the options available in Chapter 7 for handling secured debt -- redemption, reaffirmation, or surrender. For instance, you file for Chapter 7 due to combined debts you cannot pay. If you’re concerned about filing for bankruptcy and you have a house or a car that you want to keep, please come in and speak with me, an experienced bankruptcy attorney. In Chapter 7 bankruptcy, whether you keep your car depends on the car loan amount (if any) and any available exemptions you can apply to that loan. Viewer question: What happens to my car in Chapter 7 bankruptcy? Here are some other options you’ll have in Chapter 7: Find more about what happens to cars in bankruptcy in Chapter 7 Bankruptcy and Your Car. It's important to note that the vehicle owner only has to pay the amount of the car's current value. Just like redemption in chapter 7 bankruptcy, if the value of the collateral is significantly less than the unpaid balance of the loan, the chapter 13 plan can provide for payment of the value of the car as part of your plan payments to the trustee. First, you likely pledged the car as collateral when you took out the loan, making the loan a secured debt. Also, you must indicate to the court whether you intend to reaffirm the debt, redeem the car, or surrender the car (more below). This gives you time to decide which course of action to take with your car. Debt Problems? distribute the remaining funds to your creditors. So how long can the debtor keep her car after filing chapter 7 bankruptcy if she doesn’t want to keep paying for it and can’t afford to pay the creditor the car’s value in a lump sum? This may be a good option if the value of your car is much lower than the amount of your loan. When you file for Chapter 7, the following becomes true regarding your vehicle: You can potentially modify your loan agreement to reduce payments or improve terms – You may be able to negotiate for reduced payments based upon the car’s actual value. When you file for Chapter 7 bankruptcy protection you’re looking to wipe out debts and keep as much of your property as possible. You’ll need to be current on your payment and able to protect all of the home equity with a bankruptcy exemption. Redeeming a Car in Chapter 7 Bankruptcy. When you redeem the car in the bankruptcy, you pay the lender either the outstanding balance or the value of the car, whichever is less. When you file for bankruptcy, you can protect property that you’ll need to work and live by “exempting” it from your bankruptcy case. In chapter 7 bankruptcy, a personal auto exemption will protect up to $5,000 of equity in your car or cars ($10,000 if you are 60+ years of age or disabled) from the bankruptcy trustee. Therefore, if you owe more than the car is actual worth according to fair market value, you effectively discharge the difference. Similar to the above scenario, if you file Chapter 7 you can keep your car by meeting two conditions: Stay current on your car payments. For the vast majority of individuals, owning a car is an absolute necessity, so it's no surprise that one of the foremost thoughts in the minds of many people that intend to file for bankruptcy is whether they can keep their cars. (To learn more about how car exemptions work, and to find the motor vehicle exemption amount in your state, see The Motor Vehicle Exemption in Bankruptcy.). Massive debt and wage garnishments can cause it to be difficult to stay current on your automobile loan and so it’s not a surprise that individuals worry that by filing Chapter 7 bankruptcy, they will lose their car. In Chapter 7 bankruptcy you can "redeem" a car by paying the lender the current replacement value of the car. A car can be redeemed in Chapter 7 whether or not the payments are current. If you own a car, you’ll likely be able to protect (exempt) a particular amount of the vehicle’s equity (each state’s law varies). You can file a car redemption motion. You can only use it for debts for which you are up to date. In Chapter 7 bankruptcy, most or all of your debts are discharged. You’ll have to use funds that aren’t part of the bankruptcy. COVID-19 – Bankruptcy Court General Orders, Popular Restaurant Chains Filing For Bankruptcy, AMC Movie Chain Seeks Bankruptcy To Bounce Back, Houston Attorney Elected To Texas Bar Foundation. In fact, you’ll probably be able to keep it even if there’s a small amount of nonexempt equity because the car won’t be worth selling. Learn more. You have a few other considerations that you’ll have to make if you financed the vehicle and are still making payments. Missouri allows individuals to exempt up to $3,000 of equity in a motor vehicle as long as your name is on the title of a vehicle. In this case, you would be allowed to keep your vehicle. If your car is financed you can always surrender your car in chapter 7 bankruptcy. If you own a 2005 Honda Accord with no liens and a wholesale value of $5,200, a Chapter 7 trustee in a South Carolina case probably couldn’t sell your car, because you’d be entitled to claim $5,650 in equity in that car exempt. It is a common misconception that you have to give up everything valuable during chapter 7 bankruptcy. You just reaffirm the agreement in a chapter seven and you basically get to keep your car making the payments, as you always have. An experienced bankruptcy lawyer can advise you of the effect bankruptcy will have, and whether you … Debtors usually use the income earned after the bankruptcy or get a loan from friends or family. If you’re filing for Chapter 7 bankruptcy, you may want to keep your car or your home. When you agree to make one lump sum payment to the trustee for the value of the car, this is known as redemption, and can be an effective strategy for minimizing your debt using bankruptcy. In Minnesota, people without a lot of equity in a house, and renters, get to keep their tax refunds. If a consumer decides to keep a car that they're still paying on after filing a Chapter 7 Bankruptcy, they have a couple of options. Impact of Chapter 7 on Your Vehicle If you are filing for bankruptcy under Chapter 7, you may be able to keep your car by using the exemption for it. If you elect to reaffirm the debt, and the lender agrees, you will be obligated to make the payments on your car just like you did prior to your Chapter 7. Additionally, if you owe money on the car and would like to keep it, your loan will need to be current, and you’ll need to be able to continue making payments after the bankruptcy case. 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