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Can I Keep My Car if I File for Bankruptcy?

For most people their car is a lifeline to get to work, grocery shop and a million other incidental chores throughout the day. So what happens to this lifeline if you find yourself in the position of filing for bankruptcy?  The answer, in short is, “It depends.”

Do you own the car outright? Are you still making payments on the car? Are you leasing the car or need a change of loan form?  All of these scenarios will change the outcome of whether your car will remain in your possession. Let’s take a look at a few of the possible outcomes.

  • Car Ownership – If you own the car outright you’ll be able to keep it if its value is below your state’s vehicle exemption amount (the amount of equity you can protect in a vehicle).
  • Car Payments – If you are still making monthly car payments and are filing Chapter 7 Bankruptcy, you’ll need to decide whether you want to surrender the vehicle or keep it and continue to make payments and let the bankruptcy court know your decision on an official form called the  Statement of Intention for Individuals Filing Under Chapter 7.
  • Surrendering the Car – If you decide that you can no longer pay the loan or lease for the car you can indicate it on the forms and surrender the vehicle to the lender.
  • Reaffirmation Agreement – Most auto lenders require that a buyer sign a reaffirmation agreement in a bankruptcy. A reaffirmation agreement is a legally enforceable contract filed with the bankruptcy court that states your promise to repay all or a portion of a debt that may otherwise have been subject to discharge in your bankruptcy case. Some lenders require that you sign this agreement and will not send you statements or report payments to the credit bureau without the court-approved agreement. In many instances, lenders consider it a breach of the terms of your loan and will repossess the car if you fail to sign the agreement.
  • Chapter 13 Bankruptcy – In Chapter 13 bankruptcy, you are allowed to keep all of your property, including, your nonexempt assets. The Chapter 13 trustee does not sell your property to pay your creditors. In return, you pay back a certain amount of your debts through a repayment plan. This means you can keep your car.