Will I Lose My Car in Bankruptcy? Complete Guide

The Short Answer: Most People Keep Their Cars

In the vast majority of bankruptcy cases, debtors keep their vehicles. Whether you file Chapter 7 or Chapter 13, there are multiple legal tools to protect your car. The key factors are:

1. Your equity: The difference between your car's value and what you owe on the loan.
2. Your state's vehicle exemption: The amount of vehicle equity your state protects from the bankruptcy trustee.
3. Which chapter you file: Chapter 13 always lets you keep your car. Chapter 7 requires your equity to be within the exemption.

How Vehicle Exemptions Work

Every state has a vehicle exemption that protects a certain amount of equity in your car. Some key facts:

• Vehicle exemptions range from $0 (some states) to $20,000+ (Kansas, Colorado)
• Some states allow you to use a "wildcard" exemption on top of the vehicle exemption
• 17 states let you choose federal exemptions, which provide a $4,450 vehicle exemption
• Married couples filing jointly can often double the exemption amount

How to calculate your equity: Look up your car's value on Kelley Blue Book (private party value) or NADA. Subtract the loan balance. If the result is below your state's exemption, your car is protected.

Find your state's exact vehicle exemption at bankruptcyexemptionsbystate.com.

Chapter 7: Your Options for Keeping the Car

In Chapter 7, you must file a Statement of Intention (Form 108) declaring what you want to do with each secured debt:

1. Reaffirmation: Sign a new agreement to keep paying the loan. The car stays, but the debt survives the bankruptcy.
2. Redemption: Pay the lender the car's current market value in one lump sum under Section 722. Good if you owe far more than the car is worth.
3. Surrender: Return the car. Any remaining balance is discharged.
4. Retain and pay (ride-through): Some districts allow you to keep paying without reaffirming. Check local practice.

Chapter 13: Always Keep Your Car

Chapter 13 is specifically designed to let you keep property while repaying debts over 3-5 years:

• Catch up on payments: Missed car payments are cured through the plan.
• Cramdown: If you bought the car more than 910 days before filing, you can reduce the loan to the car's current value under Section 506(a).
• Interest rate reduction: The court may lower your car loan interest rate using the Till formula.
• Automatic stay: No repossession allowed while you are in Chapter 13.

Learn more at keepmycarinbankruptcy.com.