How to declare bankruptcy and keep your car?

How to declare bankruptcy and keep your car?

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Declaring bankruptcy can be a challenging and overwhelming process, but it is sometimes necessary for individuals facing financial difficulties. One common concern for those considering bankruptcy is how it will impact their assets, particularly their car. In this article, we will explore the steps to declare bankruptcy while keeping your car.

Understanding Bankruptcy

Before delving into the specifics of keeping your car during bankruptcy, it is essential to understand the different types of bankruptcy and their implications. The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy: Also known as liquidation bankruptcy, Chapter 7 involves the sale of non-exempt assets to repay creditors. However, certain exemptions exist, allowing individuals to keep essential assets, including their car, up to a certain value.

Chapter 13 Bankruptcy: Chapter 13 bankruptcy involves creating a repayment plan to pay off debts over a period of three to five years. During this time, individuals can retain their assets, including their car, as long as they continue to make the agreed-upon payments.

Determining Car Equity

To understand how bankruptcy affects your car, it is crucial to determine its equity. Car equity refers to the value of your car minus any outstanding loans or liens. If your car has significant equity, it may be subject to liquidation in Chapter 7 bankruptcy. However, if the equity is within the exemption limits, you can usually keep your car.

Exemption Limits

Each state has its own exemption limits for vehicles in bankruptcy cases. These limits specify the maximum value of a vehicle that can be exempted from liquidation. For example, if your state’s exemption limit for vehicles is $5,000, and your car’s value is $4,000, you can typically keep your car during bankruptcy.

It is important to note that exemption limits can vary significantly from state to state. Therefore, it is advisable to consult with a bankruptcy attorney or research your state’s specific exemption laws to determine the applicable limits.

Reaffirmation Agreement

In Chapter 7 bankruptcy, if your car’s equity exceeds the exemption limit, you may still be able to keep it by entering into a reaffirmation agreement with the lender. A reaffirmation agreement is a legally binding contract that allows you to continue making payments on your car loan, effectively excluding it from the bankruptcy proceedings.

By signing a reaffirmation agreement, you agree to repay the car loan as if the bankruptcy never occurred. This means that if you default on the loan in the future, the lender can repossess the car and hold you responsible for any remaining balance.

Chapter 13 Repayment Plan

If you file for Chapter 13 bankruptcy, you can typically keep your car as long as you continue making the agreed-upon payments outlined in your repayment plan. The repayment plan consolidates your debts and establishes a monthly payment amount based on your income and expenses. It allows you to catch up on missed car payments while keeping the vehicle.

It is important to note that if you fail to make the payments outlined in your Chapter 13 repayment plan, the court may grant the lender permission to repossess the car.


Declaring bankruptcy does not necessarily mean losing your car. By understanding the different types of bankruptcy, determining your car’s equity, and exploring exemption limits and reaffirmation agreements, you can take steps to keep your car during the bankruptcy process. Consulting with a bankruptcy attorney can provide further guidance tailored to your specific situation.


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