Can I Keep My Car in Bankruptcy?

Many Debtors ask us “Can I keep my car if I file Bankruptcy?”  The answer is – it depends.  There are many factors to consider and discuss with your attorney in determining what your options are with regard to keeping your vehicle in bankruptcy.

If you have a car loan:

In Chapter 7, a debtor indicates his or her Statement of Intention with regards to the car loan.  Often times, if a debtor is current and remains current on the car loan throughout the Chapter 7 process, he or she has a high likelihood of keeping the car.  Sometimes lenders will ask the debtor to execute a reaffirmation agreement to keep the car.  If a debtor has missed one or more car payments prior to the bankruptcy filing, then the lender will likely seek permission from the Bankruptcy Court to initiate the repossession process.  If this request is granted, the lender can repossess the vehicle.  After repossession, a debtor’s options to get the car back are limited, but lenders may be willing to allow the debtor to redeem the vehicle or otherwise reinstate the loan.

In Chapter 13, a debtor typically proposes to maintain payment of the car loans in the Chapter 13 repayment plan.  If the car loan is current at the time of filing, the debtor continues to make the normal monthly payments.  If the car loan is in default (i.e. the debtor has missed a few payments), the Chapter 13 repayment plan can propose to “cure” or catch up the missed payments over the course of the repayment plan.  Assuming all of the proposed cure or catch-up payments are made, upon completion of the Chapter 13 plan, the debtor’s car loan is considered reinstated or current.  In limited circumstances, a Chapter 13 debtor may also be able to reduce the principal balance and payment on the vehicle, depending on how old the vehicle is and when the car loan commenced.

If you do not have a car loan:

If you do not have a car loan and file bankruptcy, whether or not you can keep it will depend on the value of the vehicle and your available exemptions.  Debtors are required to estimate the value of their cars when the bankruptcy is filed, and this can often be done by using an internet valuation website such as Kelly Blue Book (www.kbb.com).  In Virginia, a debtor may exempt up to $6,000 of equity in a motor vehicle, $6,000 each if married and both file bankruptcy.  In addition, a debtor can also apply any remaining homestead exemption to equity that exceeds the $6,000 car allowance.  If the total available exemptions are insufficient to cover the total value of the car, the car can be sold in a Chapter 7 bankruptcy.  In Chapter 13, any non-exempt portion of the vehicle must be considered in calculating the proposed repayment amount.