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Chapter 7 Bankruptcy

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Can You File Bankruptcy and Keep Your Car? What You Need to Know Before Filing

Can You File Bankruptcy and Keep Your Car Without Losing It?

Can you file bankruptcy and keep your car? The answer depends on your car’s value, your loan status, and whether you file Chapter 7 or Chapter 13. For many people, their vehicle is essential to everyday life. Losing it could make it harder to get to work, care for family, or attend court hearings.

Thankfully, bankruptcy laws include protections that may allow you to keep your car while managing or eliminating other debts.

What Happens to Your Car in Chapter 7 vs. Chapter 13

Understanding your bankruptcy options is key to answering “can you file bankruptcy and keep your car.” The two most common types of consumer bankruptcy—Chapter 7 and Chapter 13—handle vehicle ownership differently.

Chapter 7 Bankruptcy

In Chapter 7, also known as liquidation bankruptcy:

  • Your non-exempt assets may be sold to pay creditors.
  • If your car’s equity is under the exemption limit, you can usually keep it.
  • You must stay current on loan payments if the car is financed.

If your equity exceeds the exemption limit, the bankruptcy trustee may sell the car, pay you the exemption amount, and use the rest to repay creditors. However, many filers successfully keep their car in Chapter 7 by reaffirming the loan or redeeming the vehicle.

Chapter 13 Bankruptcy

In Chapter 13, you create a 3- to 5-year repayment plan to pay debts over time. It offers more flexibility:

  • You can catch up on missed car payments through the plan.
  • If your loan is upside-down, you may be able to cram down the balance to the car’s value.
  • You can protect non-exempt equity while keeping the vehicle.

Chapter 13 is often a better choice for those who are behind on car payments or have valuable cars they want to keep.

Vehicle Exemptions: Protecting Your Car’s Equity

Every state offers vehicle exemptions, which protect a certain amount of car equity in bankruptcy. For example:

  • Federal exemption: About $4,450 (as of 2025)
  • California: Multiple exemption systems, with different vehicle protections
  • Texas: Unlimited exemption for one motor vehicle per household member

How to Calculate Your Car’s Equity

  1. Determine your car’s current market value.
  2. Subtract your loan balance (if any).
  3. The result is your equity.

If your equity is less than or equal to the allowed exemption, your car is protected. If it’s higher, Chapter 13 may still allow you to keep the car by repaying the non-exempt portion.

Can You File Bankruptcy and Keep Your Car with a Loan?

Yes, if you’re financing your car, you still have options to keep it:

Reaffirm the Loan (Chapter 7)

You agree to keep making payments, and the lender agrees not to repossess the car. This keeps the loan active after bankruptcy.

Redeem the Car (Chapter 7)

You pay the car’s current value in a lump sum—ideal if the loan balance is much higher than the car’s worth.

Repay in the Plan (Chapter 13)

Your car loan is rolled into the Chapter 13 plan, and you catch up over time, often with reduced interest or balance.

Can You File Bankruptcy and Keep Your Car? Know Your Rights

So, can you file bankruptcy and keep your car? In most cases, yes. The outcome depends on your car’s value, your exemption limits, and the bankruptcy chapter you choose. With smart planning and legal advice, many people successfully file for bankruptcy and keep their vehicle.

Get Help with How to File Bankruptcy and Keep Your Car

Still asking can you file bankruptcy and keep your car? The legal team at Bankruptcy Attorneys can guide you through the process and help protect your vehicle. Get a free evaluation today and learn what your options are before you file.

Frequently Asked Questions (FAQs)

In Chapter 7, the trustee may sell the car. In Chapter 13, you may repay the non-exempt equity over time and keep it.

Yes, if you stay current on lease payments or assume the lease as part of your plan.

Yes. The automatic stay stops repossession efforts immediately after filing.

Possibly, especially in Chapter 13, but you’ll need court approval and the lender must agree.

In Chapter 7, yes. In Chapter 13, you can catch up on past-due payments over time.

Key Takeaways

  • Most people can keep their car during bankruptcy if equity is protected.
  • Chapter 7 requires you to be current on car payments.
  • Chapter 13 allows repayment of missed payments and can reduce loan amounts.
  • State and federal vehicle exemptions determine how much equity you can protect.
  • Legal support improves your chances of keeping your car through bankruptcy.

 

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