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Your Car

One of the most stressful aspects of filing bankruptcy is deciding which assets can be kept and which possessions are to be given up.  When it comes to a car, there are several options available.

If you own the car, you will be able to keep it if its value falls under your state’s vehicle exemption amount.  Most states in the U.S. allow a Chapter 7 bankruptcy filer to keep a car, typically up to a certain value, as a car is often crucial to rebuilding a successful financial life after bankruptcy. However, if the car’s value exceeds the exemption limits or if you have several cars, the bankruptcy court can seize and sell it, with the proceeds going to the creditors.

However, if your car is a collateral for a loan or lease, the situation is different as the loan may be a debt that is eligible to be discharged in bankruptcy. There are three options after filing for Chapter 7 Bankruptcy:

  • Surrender your car: The first option is to surrender the property to the car lender in full satisfaction of the debt.  However, make sure the auto insurance payments are up to date. As a Chapter 7 bankruptcy wipes out your personal liability on your debts, your lender will never be able to come after you for the deficiency.
  • Redeem your car: Pay your lender the fair market value of your car in one lump sum cash payment. This allows you to keep the car, and not have any further debt obligation.
  • Reaffirm your debt: Acknowledge the debt and continue to pay off the loan until the obligation is fulfilled. Sometimes this may require a new contract called a reaffirmation agreement which lets you keep your car under much the same terms as your original car’s promissory note.  However, if you miss a single payment, your car can get repossessed.

Whatever option you choose, you should let the bankruptcy court know by filing an official form called the Statement of Intention (SOI) along with the bankruptcy papers.  A separate copy of the SOI should be mailed to your vehicle lender also. Likewise, if you are leasing your car, you can either reject the lease on your SOI or can keep the car by assuming the lease.

Inside Your Car