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Can I Keep My Car If I File Bankruptcy? What You Should Know
Can I Keep My Car If I File Bankruptcy Under Chapter 7 or Chapter 13? Can I keep my car
September 15, 2025
Can I Keep My Car If I File Bankruptcy? What You Should Know
Can I Keep My Car If I File Bankruptcy Under Chapter 7 or Chapter 13?
Can I keep my car if I file bankruptcy is one of the most frequently asked questions by people considering debt relief. The answer depends on multiple factors, including the chapter of bankruptcy you file, the equity in your vehicle, and whether you’re current on your car loan.
Bankruptcy doesn’t automatically mean losing your car. In fact, both Chapter 7 and Chapter 13 offer options to help you retain your vehicle if it’s essential to your daily life. In this article, we’ll explore the circumstances where keeping your car is possible and what strategies can help you protect it during bankruptcy.
Understanding Car Ownership and Bankruptcy
Before diving into the legal strategies, it’s important to understand how your car fits into your overall financial picture during a bankruptcy filing.
Vehicle Equity and Bankruptcy Exemptions
The court looks at the equity in your car—this is the value of the car minus what you still owe. If you own your car outright or have significant equity, that value can be claimed by the bankruptcy estate unless it’s protected by a state or federal exemption.
Each state has its own vehicle exemption rules, but many allow you to protect several thousand dollars of car equity. If your equity is within the limit, you may be able to keep your car.
Loan Status: Are You Current or Behind?
If you’re behind on car payments, the chapter of bankruptcy you choose will greatly impact whether you can keep your car. Chapter 7 provides limited options if you’re delinquent. Chapter 13, however, offers more flexibility to catch up on missed payments over time.
Keeping Your Car in Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often referred to as “liquidation,” but that doesn’t necessarily mean giving up everything you own. Whether you can keep your car in Chapter 7 depends on several key factors.
Exemption Protection
As mentioned earlier, if your car’s equity is within the allowed exemption amount, you can usually keep the vehicle. For example, if your car is worth $7,000 and your state’s exemption is $8,000, the vehicle is fully protected.
Reaffirmation Agreements
If you have a car loan and you’re current on payments, you may choose to reaffirm the debt. This means you agree to continue making payments even after the bankruptcy, and in exchange, you keep the car. Be cautious—if you default after bankruptcy, the lender can still repossess the vehicle.
Redeeming the Vehicle
Another option in Chapter 7 is redemption. This allows you to pay the current market value of the car in a lump sum, even if your loan balance is higher. While rare, this can be a good option if the car is worth significantly less than what you owe and you have access to a lump sum of cash or financing.
Keeping Your Car in Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as a “wage earner’s plan,” provides more tools to help you keep your vehicle, especially if you’re behind on payments or your equity exceeds exemption limits.
Repayment Plan to Catch Up
One major benefit of Chapter 13 is the ability to catch up on overdue car payments through your 3 to 5-year repayment plan. As long as you make your plan payments, the lender cannot repossess your vehicle.
Cramdown for Vehicle Loans
Chapter 13 allows a strategy called a cramdown for older car loans (generally if you purchased the car over 910 days before filing). You can reduce the loan to the current value of the vehicle and pay that amount over time, sometimes saving thousands.
Protection from Repossession
Filing Chapter 13 triggers an automatic stay, which stops repossession actions immediately. This legal protection allows you to keep your car while your case is in progress and gives you time to reorganize your debt.
Chapter 7 vs. Chapter 13 Bankruptcy and Your Car
Bankruptcy law allows different options depending on which chapter you file under. If you’re asking “can I keep my car if I file bankruptcy,” the answer depends heavily on whether you file Chapter 7 or Chapter 13.
Keeping Your Car in Chapter 7 Bankruptcy
Chapter 7 is also called liquidation bankruptcy. The trustee can sell nonexempt property to repay creditors. However, many people who file Chapter 7 don’t actually lose any property due to exemptions.
Here’s how your car is treated under Chapter 7:
- Exempt Equity: If the equity in your car (its market value minus any loan balance) falls under your state’s exemption limit, you can keep it.
- Reaffirmation Agreement: If you’re still paying off the car loan, you may sign a reaffirmation agreement to continue making payments and keep the vehicle.
- Redemption Option: You can pay the current value of the car in a lump sum, even if you owe more on the loan, though this option is rarely used due to the upfront cost.
Still, it’s crucial to stay current on your car payments during and after bankruptcy. If you default, the lender can repossess the vehicle, even after reaffirmation.
Chapter 13: A Better Path for Car Owners?
Chapter 13 may offer more flexibility for those with valuable vehicles or behind on payments. It allows you to restructure your debts into a 3- to 5-year repayment plan. This chapter is ideal if:
- You are behind on car payments and want to avoid repossession.
- Your car is worth less than the loan balance (known as being “underwater”).
- You recently bought your car and still owe most of the loan.
In Chapter 13, you can keep your car if you include it in the repayment plan and continue making scheduled payments. You might even reduce your loan balance through a cramdown, which adjusts the loan to match the car’s current value.
How Car Loans and Repossession Work in Bankruptcy
When asking “can I keep my car if I file bankruptcy,” another big issue is repossession. Here’s how bankruptcy impacts car loans:
What Happens If You’re Behind on Payments?
- Chapter 7: Filing for Chapter 7 won’t allow you to keep your car if you’re behind on payments and can’t catch up. The lender can ask the court to lift the automatic stay and repossess your vehicle.
- Chapter 13: You can avoid repossession by paying off past-due amounts through your repayment plan. As long as you stick to the plan, your car is safe.
Can the Lender Still Repossess My Car?
Yes—under specific conditions:
- If you default on payments after reaffirming your loan.
- If the court allows the lender to repossess due to delinquency.
- If your vehicle is not covered by exemptions in Chapter 7 and cannot be protected.
How Automatic Stay Protects You
When you file for bankruptcy, an automatic stay goes into effect. This prevents creditors from collecting debts, including repossessing your car, while your case is active. However, this is temporary. You must take further steps (like catching up on payments or exempting the vehicle) to protect your car long-term.
Exemptions That Help You Keep Your Vehicle
Each state offers different property exemptions in bankruptcy, and many include a specific motor vehicle exemption.
Typical Car Exemption Values
- In most states, car exemptions range from $2,500 to $7,500.
- Some states allow wildcard exemptions, which you can apply to any property, including a car.
You must use either the federal or your state’s exemptions, depending on where you file. In community property states, both spouses’ exemptions might be combined if you file jointly.
Knowing your exemption limits is key when determining, “Can I keep my car if I file bankruptcy?” Your bankruptcy attorney can help you apply the correct exemptions to protect your car.
Smart Strategies to Help You Keep Your Car
If keeping your vehicle is a priority when filing bankruptcy, a few strategic steps can improve your odds. Many filers successfully retain their cars with careful planning and legal guidance.
Know Your Vehicle’s Equity
Calculate your car’s equity by subtracting the loan balance from the current fair market value. This will determine whether your car is exempt or at risk in Chapter 7. If you have little or no equity, it’s usually safe.
Use the Right Exemptions
Apply your state’s motor vehicle exemption to your car’s equity. If the equity exceeds the limit, you might be able to use a wildcard exemption to protect the remainder.
Stay Current on Payments
In both Chapter 7 and Chapter 13, staying up to date on car payments strengthens your position. Lenders are less likely to pursue repossession if you’re not behind.
Choose the Right Chapter
If you’re behind on payments or your car is over the exemption limit, Chapter 13 may be a better option. It offers the flexibility to cure defaults and reorganize your debt while keeping your car.
Keeping a Leased Car When Filing Bankruptcy
What if you’re leasing your car instead of owning it?
- Chapter 7: You can reject or assume the lease. If you reject it, you return the car and eliminate the lease debt. If you assume it, you must stay current and continue with the lease.
- Chapter 13: You can include the lease in your repayment plan. If you want to keep the leased vehicle, you’ll continue making payments as scheduled.
It’s important to consider whether keeping a leased car aligns with your financial goals before including it in bankruptcy.
Can I Keep My Car If I File Bankruptcy and Move Forward Financially?
Filing for bankruptcy can feel overwhelming, especially when your car is essential to daily life. But if you’re asking, “Can I keep my car if I file bankruptcy?”—the good news is, you often can. Whether through exemptions, reaffirmation agreements, or smart planning under Chapter 7 or Chapter 13, many people retain their vehicles.
While bankruptcy may temporarily affect your ability to secure new auto financing, it also gives you a chance to rebuild. Keeping your car allows you to maintain your job, care for your family, and restore financial stability over time. With the right legal strategy, your vehicle can become part of your recovery, not a casualty of your debt.
Get Help Keeping Your Car Through Bankruptcy
Wondering, “Can I keep my car if I file bankruptcy?” The answer depends on the chapter you file, your loan status, and your state’s exemption laws. At BankruptcyAttorneys.net, we help individuals nationwide understand their legal rights and protect what matters most—including their vehicle.
Get a free evaluation today and let our experienced bankruptcy attorneys guide you through the process with confidence and clarity. We’ll help you keep your car and move forward with peace of mind.
Frequently Asked Questions (FAQs)
1. Can I keep my car in Chapter 7 if it’s paid off?
Yes, if your car is paid off and its value falls within your state’s exemption limit, you can keep it in Chapter 7. If it’s worth more than the exemption, the trustee may sell it unless you can use a wildcard exemption.
2. What happens if I stop paying my car loan during bankruptcy?
If you stop paying, the lender may request the court’s permission to repossess the car, even if you’re under bankruptcy protection. This applies to both Chapter 7 and Chapter 13 filings.
3. Can I buy a car after filing bankruptcy?
Yes, but it may take time to qualify for financing. Lenders often approve car loans 6–12 months after discharge, although you may face higher interest rates at first.
4. Can I surrender my car voluntarily during bankruptcy?
Yes. If you no longer want or can’t afford your car, you can surrender it during bankruptcy and discharge any remaining loan balance. This is common when a car is worth less than what you owe.
5. Will bankruptcy stop a repossession?
Yes, filing bankruptcy creates an automatic stay that temporarily halts repossession efforts. However, the lender can ask the court to lift the stay, especially if you’re behind on payments.
Key Takeaways
- Can I keep my car if I file bankruptcy? Yes—if you meet the exemption rules or continue payments.
- Chapter 7 allows you to keep your car if it’s exempt or you reaffirm the loan.
- Chapter 13 helps you catch up on payments and potentially reduce your car loan.
- State exemptions play a major role in whether your car is protected.
- Legal advice is key to navigating the process and avoiding car loss.
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