If you want to keep your car during bankruptcy, you have to know the value of your vehicle, and what your state allows you to exempt for its value. Each state has different guidelines when it comes to keeping property during bankruptcy, and the type of bankruptcy you file also plays a role.
Using Bankruptcy Exemptions
Bankruptcy exemptions are in place in the U.S. to protect personal property that you might otherwise lose in a Chapter 7 bankruptcy. Chapter 7 bankruptcy is considered a liquidation bankruptcy, during which your trustee sells your nonexempt property in order to pay back your creditors.
Any property that's covered by an exemption can't be sold. However, if you can't cover an item entirely, but can cover some of it, it's up to your bankruptcy trustee whether it's worth liquidating. A Chapter 7 generally lasts four to six months, and any remaining unpaid debt is wiped out upon discharge.
The amount of property you're allowed to keep depends on the bankruptcy exemptions allowed in your state. Most states require you to use the state bankruptcy guidelines for the amounts on property you can exempt.
There are also federal bankruptcy exemptions that can be used in some cases, but only in these 20 states that allow you to choose between state and federal bankruptcy guidelines:
|---||---||Alaska||---||---||Kentucky||---||---||New Jersey||---||---||Rhode Island|
|---||---||District of Columbia||---||---||Minnesota||---||---||Oregon||---||---||Washington|
If you live in one of the above states, you can use either set of exemptions, but research them carefully. Each state's guidelines are different in allowing you to keep different items and amounts.
In a Chapter 13 bankruptcy you don't lose your property, but exemptions are used to determine how much you have to repay over the course of either three or five years until your bankruptcy is discharged.
Keeping Vehicles with Auto Loans
When you have a financed car during a Chapter 7 bankruptcy, you have two options to save your vehicle: redemption or reaffirmation.
Redemption can save your car altogether, but you have to pay the remainder of your loan in one lump sum, which may be difficult when you're in a bankruptcy. If you are able to redeem your vehicle, however, make sure that its value can be exempted. If it can't, your trustee can choose to liquidate your car in order to repay your debts.
Your second option is reaffirmation. When you reaffirm your loan, you're making an agreement with the lender to continue making payments. This option can help you save your vehicle if the loan balance falls within the exemption amount, but it’s going to be repossessed if you aren't able to keep up with the payments.
This is because your car is no longer included in the bankruptcy once you reaffirm the loan. It also means that any amount you still owe isn't wiped out with the rest of your debts at discharge.
In a Chapter 13 bankruptcy, you're allowed to keep your vehicle as long as you can repay the loan through your repayment plan. However, you have to keep up with your plan. If not, you’re in danger of defaulting not only on your auto loan, but your bankruptcy as well, which can cause numerous complications for you.
If You Can't Keep Your Car
If exemptions or reaffirmation aren't enough to save your car in bankruptcy, you may still be able to finance another one. There are many dealerships that work with lenders that can help you get a vehicle, even during or after a bankruptcy.
Here at The Car Connection, we work with a nationwide network of these dealers and we want to help you find one in your area. To get the process started now, simply fill out our quick and easy car loan request form. Once you do, we'll get to work connecting you to a local dealership.