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C is for Cars

C is for Cars

A common first question I'll get over the phone or via email from a perspective Chapter 7 or Chapter 13 client is something along the lines of "if I file bankruptcy, can I keep my car?". The answer is almost always YES.

In a Chapter 7 bankruptcy you're able to protect a certain amount of assets by using the applicable exemptions available under the bankruptcy code. The most common scenario is where you've purchased a car but are still making payments on it. In this situation, the car is often worth less than the balance owed. In this case there is no 'equity' in the car and therefore there's no asset to value. If there is equity - this is what must be 'exempted'. This is where your bankruptcy attorney will be able to determine if you can protect the car from the Chapter 7 Trustee. If there's too much equity in the vehicle (extremely unusual), your attorney may instead recommend filing under Chapter 13 - which is a non-liquidating bankruptcy.

Once the equity/exemption issue is cleared - there's still the creditor to deal with: are you current on the payments? If yes, the creditor will likely insist on a Reaffirmation Agreement. This is essentially an agreement that puts the car creditor in the same position they were in prior to you filing the Chapter 7 case (i.e. you want the car, you keep the car, you pay for the car, you insure the car, etc.). Such an agreement can also be a useful tool in rebuilding credit after a bankruptcy. If you're not current on the car payments, the filing of the case provides a temporary 'shield' from the creditor - they can't just come get the car once you've filed, they will need Court permission. When this is the case, your attorney will be able to determine if you can negotiate with the creditor to get the car payments caught up. If not, you may be counseled regarding a Redemption or instead, filing a Chapter 13 (which would allow you to put together a Court supervised Plan to get caught up on the car payments over time).

Chapter 13 can be particularly useful in situations where a car has been repossessed (but not sold) and you want to get it back OR where you want to keep your car despite unfavorable loan terms (i.e. the value of the vehicle is a fraction of the principal of the amount owed and/or the loan has an astronomical APR).

When contemplating bankruptcy understand that most likely you'll be able to retain your car. A qualified bankruptcy attorney can help determine a strategy that's best for you.


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