Cars and Bankruptcy – Can I Keep My Car if I File Bankruptcy?

Filing for bankruptcy isn’t a decision that is made lightly. Often, it is the last resort to reset your finances. Keeping a car is one of the top concerns among people who file for bankruptcy. Access to a vehicle is a lifeline for most people with dire financial circumstances.

The good news is: The system is set up to allow most people to keep their car after filing for bankruptcy. Those filing Chapter 7 can “reaffirm” their loan, “redeem” the loan or buy the car outright. Under Chapter 13, individuals can continue to pay their car loan and other debt under a structured repayment plan. However, both have several steps for those wishing to keep their car.

Filing for Bankruptcy When I Own My Car?

Determining its status is the first step to keeping your car if you are considering bankruptcy. Are you paying for a loan or leasing, or do you own it free and clear? When filing for bankruptcy, you are required to list your assets. Your car is considered an asset because it has value. You may also be required to file a statement of intention that tells the court whether you plan to reaffirm your loan, redeem the car, or surrender it.

If you own your car free and clear, you will still have to account for it during your bankruptcy. Therefore, the value of your car could be critical to your case.

Can I Keep My Car in Chapter 7 Bankruptcy?

If you file for Chapter 7 bankruptcy in Naples, Florida, your car may be considered “exempt” property. This is partly due to bankruptcy court allowing those filing Chapter 7 a certain amount of money, called an exemption, for a car, a house, and other belongings. The federal exemption is $4,000, updated every three years. Thirty-one states have different exemptions for those filing for bankruptcy. Florida’s vehicle exemption is up to $1,000. If your car’s equity is less than the exemption, you should be able to keep it under Chapter 7 bankruptcy. If it is higher than that, the trustee may decide to administer the asset to pay some monies to your unsecured creditors. You may have to negotiate with the bankruptcy trustee to buy back the equity in your car.

Your car’s equity becomes essential if you are still making car loan payments. If you are not current on your car loan, the bank may offer you the opportunity to sign a reaffirmation agreement. It is upon the Creditor to propose a reaffirmation agreement.  Sometimes your attorney can negotiate a lower interest rate or longer payment term if you need assistance in keeping the car. Once the agreement is approved, you must stay current on payments, or you could lose the car. Once you sign a Reaffirmation Agreement, you may not receive the benefits of the bankruptcy stay, and the lender may be able to collect if you default on the agreement.

If you choose not to sign a reaffirmation or the judge disapproves, your car may be at risk.

Can I Keep My Car in Chapter 13 Bankruptcy?

Chapter 13 bankruptcy offers benefits that can help you keep your car by stopping repossession, allowing you to catch up on your car payments or, possibly reducing your interest rate.  Alternatively, you could surrender your car back to the bank (lender) if you can’t make the payments or no longer wish to keep the car. Surrendering your car under Bankruptcy still protects you from that creditor.

Filing for Chapter 13 also comes with exemptions that explain what you can keep. For example, chapter 13 typically allows you to keep your non-exempt property, but you pay the property’s value in your payment plan. Your bankruptcy trustee would then disperse those payments to your creditors.

How to Keep Your Car in Chapter 13 Bankruptcy

1. Prove you can afford it: You must show that you can afford your monthly payments to your creditors. Bankruptcy can be costly, especially if you retain a lot of non-exempt property. These payments are made through a 3 to 5-year repayment plan. However, if creditors feel they are not getting fair treatment, they can object to your payment plan.
2. Pay for excessive car equity: You could exempt specific property, including up to $1,000 of equity in your car, from administration under Chapter 13 bankruptcy. But you must pay in the Chapter 13 Bankruptcy an amount equal to any non-exempt assets you keep. Since you are paying your unsecured creditors an amount equal to the value of your non-exempt property, saving a lot of non-exempt car equity can increase your required repayment.
3. Prove your car expenses are reasonable: Your Chapter 13 repayment plan needs to show how your disposable income will be used to repay your unsecured debts. Your creditors must be paid an amount at least equal to the value of your non-exempt property or your disposable income under a means test, whichever is greater, to be confirmable by the Court. The Chapter 13 Trustee or your Creditors, may object to your repayment plan if you use your income for non-essential items like high car payments or a second car that isn’t needed. The bankruptcy court may decide that making high car payments for a luxury car is not a reasonable expense, nor is having two cars. With that in mind, you may not be allowed to include the car payment in your repayment plan.

And sometimes, keeping a car during Chapter 13 is not feasible. For example, if you have a lot of non-exempt car equity, your car payment is very high, or you are making payments for a second car you don’t need, consider surrendering the car to relieve you of the obligation.

Wondering Where to Start?

Filing for bankruptcy is not a task to be taken on alone. It can be an expensive and lengthy process. If you are in Southwest Florida and looking to keep your car during this process, contact Miller, Hollander, and Jeda. We have a team of bankruptcy attorneys with almost four decades of practice in bankruptcy law. We understand that filing for bankruptcy is complicated, and you shouldn’t have to lose everything. Your Florida law firm is determined to help you find the right solutions tailored to suit your unique financial situation. Call us today to find out how you can keep your car.

Miller, Hollander & Jeda’s founding attorneys began practicing in the early 1970s before putting down roots in the area and joining forces in 1992 to create the Naples, Florida, law firm that bears their names. Since its inception, Miller, Hollander & Jeda has focused on bankruptcy. The goal of our attorneys and our experienced staff, established at the outset and built upon year by year, is to use our extensive knowledge of bankruptcy law to answer the complicated questions you have regarding your financial trouble and help you solve your problems. We take pride in helping clients get a fresh start.