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What happens to my car if I file for bankruptcy?

For many people, their car is their lifeline.  It may be needed for work, school, child care, medical appointments and the numerous errands that need to get done daily.  So, if financial problems lead to bankruptcy,  what happens to that lifeline? Believe it or not there are some options when it comes to your vehicle and Chapter 7 Bankruptcy. Let’s look at a few scenarios and available options depending upon your unique situation.


  • If you are done making payments on the car. . . Most likely you will be able to keep the car if its value is below either the federal or your state’s vehicle exemption amount. Consult your bankruptcy attorney for specific amounts.


  • If you are still making car payments . . . You will need to determine whether you want to surrender your vehicle or keep it and continue to make payments. When your bankruptcy petition is filed, you indicate to the bankruptcy court how you want to deal with your vehicle. This official form is called the Statement of Consumer Intention (SOCI) and is filed with your other bankruptcy papers.


  • The Surrender Your Car Option – If you decide to surrender your car, you are in essence walking away from it and, in so doing, you will relieve yourself of the debt and will no longer be liable for the payments.  Some people simply do this to find a less expensive car and a lower payment.  Others continue to drive their car without making payments until their lender comes for the car.


  • The Keep Your Car Option – If you want to keep a car, you will agree to continuing to make your payments as scheduled. In order to keep the car you may choose to one of the following options – repay the lender in a lump sum (redemption) or have your contract survive your bankruptcy (reaffirmation). Either way this information needs to be clear in your Statement of Consumer Intention. There is a third option not contained in the bankruptcy code . . . it is euphemistically called ‘pay and retain.’ ‘Pay and retain’ is neither a redemption or a reaffirmation. It is a practical approach that recognizes that lenders do not want your vehicle. The result: you continue making the payments and get to retain your vehicle.

While these options may seem confusing to sift through, your qualified attorney can help you choose the option that will best suit your situation.