What happens to my car if I file for bankruptcy? Can bankruptcy help save my car?

“Can I keep my car?” is a question that people considering bankruptcy often ask. Filing for bankruptcy does not mean you will automatically lose your car. In fact, most of our clients are able to keep their vehicles. It all depends on your unique situation.

There are three types of situations we need to discuss when it comes to cars.
1. You own the vehicle outright.
2. You still owe money on your car but are current.
3. You are behind on your car payments.

I Own My Car Outright
The amount of property you can keep is governed by exemption laws.

If the value of your car is less than the allowable amount for exemptions, then you can keep your car. Now, before you start worrying, take a deep breath because California has very generous exemptions and most of our clients keep all of their property in bankruptcy. If we can’t protect your car in a Chapter 7, Chapter 13 is also an option.

I Still Owe Money On My Car - Chapter 7 Options
If you still owe money on your car, you should ask yourself if you can afford to keep it after bankruptcy. You will still need to be able to make your payments and pay for the insurance, registration, and maintenance of the vehicle. If you decide you can’t afford the vehicle, bankruptcy will allow you to give up your car and walk away without owing another penny.

In general, you’ll need to be current with your car payments, or be able to “make-up” the missed payments. Otherwise, the lender can exercise its right to repossess the vehicle despite the bankruptcy.

Another option is redemption. If you owe more on your car than your car is worth, redemption allows you to buy the car for what it is worth, which is often far less than what you owe. However, this requires a lump sum payment.

Keeping Cars in Chapter 13
If you’ve missed car payments, and the repo man is out looking for your car, Chapter 13 may be a good option. This will stretch the amount owed over five years, which will lower your monthly payment. If you acquired your current car loan more than 910 days ago, you can “cram down” your loan to fair market value. In any case, we can reduce your interest rate to about 5-7% in Chapter 13.