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Will I Lose My Car If I File Bankruptcy? What Really Happens to Your Vehicle
Will I Lose My Car If I File Bankruptcy or Can I Keep It? If you’re facing financial trouble, you
September 26, 2025
Will I Lose My Car If I File Bankruptcy? What Really Happens to Your Vehicle
Will I Lose My Car If I File Bankruptcy or Can I Keep It?
If you’re facing financial trouble, you might be asking, will I lose my car if I file bankruptcy? For many people, a vehicle is essential for work, family, and daily life. In many cases, it may be possible to retain a vehicle during bankruptcy, depending on the circumstances.
The answer depends on your car’s value, your loan balance, and whether you file Chapter 7 or Chapter 13. Let’s walk through your options.
Understanding Car Ownership in Bankruptcy
How Chapter 7 Affects Your Car
In Chapter 7 bankruptcy (also called liquidation bankruptcy), the court may sell your non-exempt assets to pay off creditors. Whether you keep your car depends on:
- The equity you have in the vehicle
- The exemption amount allowed in your state
- Whether your loan payments are current
If your equity in the car is fully protected under your state’s vehicle exemption, and you’re current on payments, the vehicle may qualify for exemption protection.
However, if the equity exceeds the exemption or you’re behind on payments, the court may repossess or sell it to pay your debts.
How Chapter 13 Affects Your Car
Chapter 13 is a repayment plan. You propose a 3- to 5-year plan to repay debts, including car loans. This may allow you to propose a repayment plan that addresses:
- Past-due car payments
- Certain loan balances (in limited circumstances)
- Repossession issues, subject to court approval
Even if you’re behind on payments, Chapter 13 may provide a structured process to address the loan.
Vehicle Exemptions: The Key to Keeping Your Car
Every state has a vehicle exemption limit—a dollar amount of car equity that is protected in bankruptcy. Some examples:
- California: ~$3,625 (depends on exemption system chosen)
- Texas: Unlimited, if the car is necessary for work or basic living
- Federal exemption (used in some states): ~$4,450
If your car’s equity is under this threshold, it may be protected from liquidation in Chapter 7. In Chapter 13, the exemption helps reduce what you must repay unsecured creditors.
Will I Lose My Car If I File Bankruptcy with a Car Loan?
If you’re still financing your car, here are your options:
Reaffirmation Agreement (Chapter 7)
You may choose to reaffirm the car loan, agreeing to continue making payments and keeping the car. This avoids repossession but keeps you liable for the loan even after bankruptcy.
Redemption (Chapter 7)
In some cases, you can redeem the car by paying its current value in a lump sum, even if you owe more on the loan. This only applies to personal-use vehicles.
Payment Through Chapter 13
In Chapter 13, you include your car loan in your repayment plan. You can even cram down the loan if the car is worth less than what you owe and you’ve owned it for at least 910 days.
Will I Lose My Car If I File Bankruptcy? Know the Factors
So, will I lose my car if I file bankruptcy? The answer depends on a few key factors:
- Your car’s market value
- How much you owe
- Whether your payments are current
- The exemption laws in your state
- Which chapter of bankruptcy you file
With proper planning and legal guidance, some individuals may be able to retain a vehicle while addressing other debts.
Get Help Answering “Will I Lose My Car If I File Bankruptcy?”
Still asking “will I lose my car if I file bankruptcy”? The team at Bankruptcy Attorneys is here to help. We’ll assess your car equity, payment status, and legal exemptions to give you clear answers. Get a free evaluation today to discuss how bankruptcy may affect your vehicle and overall financial situation.
Frequently Asked Questions (FAQs)
1. Can I keep my car if it’s paid off?
Yes, if its value is under the exemption limit for your state or federal rules.
2. What if my car is worth more than the exemption?
In Chapter 7, the trustee may sell the car and pay you the exemption amount. In Chapter 13, you repay the excess through your plan.
3. Will bankruptcy stop car repossession?
Yes. The automatic stay immediately stops repossession efforts after filing.
4. Do I have to reaffirm my car loan in Chapter 7?
No, but if you want to keep the car and continue paying, reaffirmation is one option.
5. Can I buy a car after filing bankruptcy?
Yes, but you may face higher interest rates and need to wait until your case is closed or discharged.
Key Takeaways
- You may keep your car in bankruptcy if equity is protected by exemptions.
- Chapter 7 works best if you’re current on car payments and equity is low.
- Chapter 13 may help address missed payments while repossession actions are pending.
- Reaffirmation or redemption may allow you to retain your car in Chapter 7.
- Knowing your car’s value and loan details is key before filing.
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