Whether or not you keep your vehicle during a bankruptcy filing depends on several factors. There are ways to protect your vehicle, but it might mean making other sacrifices. The two most important factors that determine whether or not your car is protected include the type of bankruptcy you file and your current car ownership status or loan.

If You File Chapter7

Filing Chapter 7 bankruptcy requires you to pay the holder of your vehicle loan the replacement value of that vehicle. This value is often higher than if you were going to sell your vehicle in a private sale. Some filers are able to reaffirm the debt on their car loan, but the vehicle is still at risk after this process.

If You File Chapter 13

Filing Chapter 13 bankruptcy might still give you a chance of retaining ownership of your vehicle. You will need to repay the entire vehicle loan if you have purchased your car within two and a half years of the filing. You will not have an option of changing the amount owed on the loan. If your car was purchased more than two and a half years before filing, it might be possible to “cram down” the loan and only be responsible for the current value of the car (as opposed to the value of the loan). It does not discharge the debt, but it can reduce the amount you owe.

What If I Own My Car?

If your car loan is paid off and you own the car free and clear, it will be claimed as exempt property under your bankruptcy. This means it is protected in the bankruptcy and cannot be taken by creditors. Some filers, when faced with bankruptcy and only a small debt owed on their vehicle, choose to pay it off so it can be protected during the filing process. If there is still a significant amount owed on the vehicle loan, it might be advantageous to allow the vehicle to become part of the estate. This discharges the loan, so you will not be required to pay, but you lose your vehicle. However, you might have the option of replacing the vehicle with a cheaper vehicle.

If you have questions or concerns about your assets and filing for bankruptcy, contact the Law Office of Brian R. Lewis for more information.