Filing for bankruptcy is a significant decision, often accompanied by the concern of whether you can keep your car. This comprehensive guide outlines the strategies and steps involved in filing for bankruptcy while retaining your vehicle.
Understanding Bankruptcy and Your Car
Filing for bankruptcy doesn’t always mean losing your car. The outcome depends on the bankruptcy chapter filed, the equity in your car, and the exemptions you can apply.
Keeping Your Car After Filing Bankruptcy
- Bankruptcy Exemptions: Both Chapter 7 and Chapter 13 bankruptcy have exemptions that can protect your car. These exemptions vary by state and can cover a certain amount of equity in your vehicle.
- Chapter 7 Bankruptcy: Often called a liquidation bankruptcy, Chapter 7 might allow you to keep your car if your equity in the vehicle is less than the state’s motor vehicle exemption.
- Chapter 13 Bankruptcy: This reorganization bankruptcy lets you keep your assets, including your car, while you make payments through a repayment plan.
How to Declare Bankruptcy and Keep Your Car
- Determine the Bankruptcy Chapter: Choose between Chapter 7 and Chapter 13 based on your income, debts, and assets.
- Understand Your Car’s Equity: Calculate the equity in your car. If it’s under your state’s exemption limit, you might be able to keep it.
- Consider a Reaffirmation Agreement: In Chapter 7, you can sign a reaffirmation agreement to keep making car payments and retain ownership.
Returning the Vehicle in Bankruptcy to Get Out of a Car Loan
If you’re struggling with car payments, bankruptcy can allow you to surrender the vehicle and discharge the car loan.
Bankruptcy Erases Car Loans But Not Car Liens
Filing for bankruptcy can eliminate your obligation to pay off the car loan, but it doesn’t remove the lien. The lender can still repossess the car if payments aren’t made.
Steps to File for Bankruptcy
- Gather Financial Documents: Compile documents like income statements, debts, assets, and expenses.
- Credit Counseling: Complete a credit counseling course from an approved agency.
- File Bankruptcy Petition: Submit your bankruptcy petition along with necessary documents and exemptions.
What Happens to My Car During Bankruptcy?
Your car’s fate in bankruptcy depends on your equity in the vehicle, your state’s exemption laws, and the bankruptcy chapter you file.
How Does Bankruptcy Affect Credit?
Filing for bankruptcy significantly impacts your credit score. Chapter 7 bankruptcy stays on your credit report for ten years, while Chapter 13 remains for seven years.
Yes, if your car equity is less than your state’s exemption limit and you continue to make payments, you can keep your car in Chapter 7 bankruptcy.
In Chapter 13, you can keep your car and include the car loan in your repayment plan, potentially reducing the amount owed.
A reaffirmation agreement is a contract in Chapter 7 bankruptcy that allows you to keep certain assets, like a car, by continuing to pay the loan.
Yes, bankruptcy can provide options either to restructure the loan in Chapter 13 or surrender the car in Chapter 7 to discharge the loan.