Whether you can retain your car after filing bankruptcy depends on a number of factors.
Which type of bankruptcy case you filed – Chapter 7 or 13. Whether you have a loan on the car or it is paid off. Whether you are current on your car payments. Whether your budget indicates that you can afford making the car payments going forward.
If you file Chapter 7 bankruptcy, then you must be current on your car payments to retain the car. Also, you must continue to make the car payments as they come due. You must have full coverage insurance on the car (often required by your loan). Lastly, you likely will be asked by the lender to sign a reaffirmation agreement so you are still responsible for car payments after the case is closed. Your budget must show you can afford the car payments as well as your living expenses. Otherwise, the car payments would be an undue hardship and the reaffirmation agreement may not be approved by the court.
If you file Chapter 7 and the car is paid in full, then you may retain the car as long as its value has been fully exempted. The motor vehicle exemption is $1,000. You get an additional $4,000 exemption for any type of property when you do not use the homestead exemption. So a thorough discussion of all of your property is necessary to determine whether you may exempt and retain a paid in full car.
You may retain a car regardless of whether you are current on your car payments when you file Chapter 13 bankruptcy. Similarly, you may retain a paid in full car regardless of whether you can fully exempt the car in Chapter 13. However, equity in a car will impact how much you have to pay to the Chapter 13 Trustee each month.
So you will not necessarily lose your car if you file bankruptcy.
Brent M. Myer
Attorney at Law