Keeping your vehicle is one of the most common concerns for people considering Chapter 7. In most cases, you can keep it.
Three Scenarios
- You have a car loan and are current: You sign a reaffirmation agreement with the lender, agreeing to keep the loan outside of bankruptcy. You keep the car and continue making payments. This is the most common outcome.
- You own the car free and clear: Your state's motor vehicle exemption protects your equity. If the car is worth less than the exemption amount, you keep it with no issues. Federal exemption: $4,450. State exemptions vary widely -- some states offer $7,500 or more.
- You have negative equity (owe more than it is worth): You have no equity at risk. You can reaffirm and keep paying, or you can surrender the vehicle and discharge the deficiency balance.
What About Lease Vehicles?
If you are leasing, you can assume the lease in bankruptcy by staying current on payments and filing a statement of intention indicating you wish to assume. The lease continues as if nothing happened.
When Surrender Makes Sense
Sometimes surrendering a vehicle is the smart move -- if the car is not worth what you owe, if payments are unaffordable, or if maintenance costs are too high. The remaining balance after the lender sells the car is discharged in your Chapter 7, giving you a clean slate to acquire a more affordable vehicle after discharge.
The vehicle exemption is just one piece of the exemption system. For a complete picture of what you can keep in bankruptcy, research your state's specific exemptions or consult a bankruptcy attorney.