Can I Keep My Car if I File a Chapter 7 Bankruptcy?

Chapter 7 bankruptcy involves the discharge of most, if not all, debts. The code gives power to the trustee to liquidate i.e. sell your assets, and give the proceeds to your creditors; however, depending on the value of your car, it can usually be saved when you file.

Let’s take a look at how you can retain your car in two different situations when you file for Chapter 7.

Scenario 1 — You Own Your Car or Have Outstanding Loan on Car

In case you own your car or have an outstanding loan on the vehicle, you can keep your vehicle if the equity value (after deducting the amount of the lien) is $3,750.00 or less.  That is the value in a car that is exempted or protected under the U.S. Bankruptcy Code for a car that you are currently driving. In considering the value of your vehicle, the trustee will take into account its condition as well as the number of miles you have on it.   If the value is greater than $3,750.00, the trustee may require you to pay him that additional amount, and use the proceeds to pay off your creditors.

If you are financing your car, subtract the value of the car from the amount you owe; as long as the remaining equity is $3,750.00 or less it will be protected under the Bankruptcy Code. If the equity in your car is over $3,750.00 it is possible the trustee will make a claim on your vehicle, and may require you to pay him that amount above.

If you are financing your car, and you want to keep it the car financer will require you to sign a Reaffirmation agreement.  By signing this agreement, you are reaffirming your car loan and agreeing to pay the car loan installments after the Bankruptcy. You are not required to sign a reaffirmation Agreement and you can instead surrender the vehicle and discharge the debt.

This agreement must also be approved by the Court.  For the Court to approve it, you must show that you can afford to make those payments; otherwise, the court can disapprove the agreement and you may lose possession of your car even if the value is under $3,750.00. You also have to maintain your regular payments and keep the car  insure if you want to keep your vehicle. You may want to consult a Cleveland bankruptcy lawyer about your options.


Scenario 2 — You Have a Leased Vehicle

If you have a leased car when you file for Chapter 7 bankruptcy,  you can continue that lease if you want.  You must sign a form known as the Statement of Intention for Individuals Filing Under Chapter 7 with the Court.  This form must be filed no more than 30 days after filing a petition.   This form should also be signed if you want signed a security agreement for furniture and jewelry and you want to keep those items after filing

The statement of petition tells the trustee what you want to do with the unexpired car lease.

  • You can decide to keep the lease and continue making timely payments until the lease expires.
  • You can reject the lease and let your creditor repossess your car. This is a good option if you have excess mileage or car damage since you will not be responsible for further installment and fees if you reject the lease.

Before filing for a bankruptcy protection, you should contact a qualified attorney. He will help you explore your options so you can keep possession of your car when you file.

Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

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