If you’re filing for bankruptcy to get some relief from creditors and get your financial situation back on track, you may have wondered what happens to personal assets like your car during the bankruptcy filing process.
Many people fear losing their car to creditors when filing bankruptcy, but the good news is that in most cases, bankruptcy law will protect your vehicle from repossession.
The key thing to remember when filing for bankruptcy is that you will be granted different types of protection based on the type of bankruptcy you are filing.
Whether you file Chapter 7 or Chapter 13, you’ll need to consider whether you can really afford to keep the vehicle given your current financial situation. Either way, filing for bankruptcy will cease repossession of your vehicle.
Saving Your Car with Chapter 7 Bankruptcy
When you file for Chapter 7 bankruptcy, you will need to evaluate how much your car is worth and decide if it’s time to surrender your vehicle as you liquidate assets during the bankruptcy process. If you decide to keep it, you need to make sure that you really can afford to make payments on time.
You may have the option to sign a Reaffirmation Agreement with your lender that acknowledges that you still have the car loan while filing bankruptcy, and that the lender has the right to pursue legal methods for collecting that debt if you don’t make your payments on time. This agreement can only go into effect if you are current on your car payments.
Every state has its own set of limitations on whether a car is exempt from bankruptcy, and this is usually based on how much the car is worth. For example, in the State of Oklahoma, a car that you don’t owe any money on is exempt if it is worth less than $7,500. You can talk to a bankruptcy attorney to find out if your car is exempt.
If you are leasing your vehicle and you find that you can’t afford to continue making lease payments, you will need to give the car back to the dealership.
Saving Your Car with Chapter 13 Bankruptcy
When you file for Chapter 13 bankruptcy, the courts will give you a chance to catch up on any outstanding debts, including your car loan debt. This means that you could be set up with a new payment arrangement so that your monthly payment becomes more affordable.
Your creditors are also not allowed to harass you or threaten to take away your vehicle (or other assets) when you file Chapter 13. In some ways, you are granted immunity from your creditors so that you have a chance to catch up on your loans and payments. As long as you are making your payments on time, you will be able to keep your car.