Keep Your Car in Bankruptcy FAQ -- Vehicle Protection Questions

Yes, in most cases. If your car equity is within your state's vehicle exemption, the trustee cannot take it. You must be current on payments and either reaffirm the loan, redeem the vehicle, or continue making payments (ride-through, in courts that allow it).

A reaffirmation agreement is a legal document where you agree to remain personally liable for a car loan after bankruptcy. You keep making payments and keep the car, but you give up the protection of the discharge for that debt. If you later default, the lender can repossess and sue for the deficiency.

It depends. Reaffirmation keeps your payment history reporting to credit bureaus (helping rebuild credit) and may prevent the lender from repossessing. However, it makes you personally liable again. If the car is worth less than you owe, or if you are struggling financially, reaffirmation may not be wise.

A cramdown allows you to reduce your car loan balance to the vehicle's current market value if you purchased the car more than 910 days before filing. For example, if you owe $20,000 on a car worth $12,000, you can pay just $12,000 through your plan at a court-approved interest rate.

Under the hanging paragraph of Section 1325(a), if you purchased your car within 910 days (about 2.5 years) of filing Chapter 13, you cannot cram down the loan. You must pay the full balance. Cars purchased more than 910 days before filing are eligible for cramdown.

Vehicle exemptions vary widely by state. Texas allows $2,500 per family member, while some states allow up to $25,000. The federal exemption is $4,450. Visit bankruptcyexemptionsbystate.com for your state's specific vehicle exemption amount.

Yes. In Chapter 7, you can assume the lease by continuing payments. In Chapter 13, the lease payments are included in your plan. You must decide whether to assume or reject the lease within 60 days of filing, or the lease is deemed rejected.

If you are 'upside down' on your car loan, a Chapter 13 cramdown (if eligible) can reduce the loan to the car's value. In Chapter 7, you can surrender the car and discharge the deficiency, or reaffirm if you want to keep it.

Not without court permission. The automatic stay prevents repossession immediately upon filing. If the lender violates the stay, they can be held in contempt. However, if you stop making payments and do not reaffirm, the lender can eventually get relief from the stay.

If you surrender your car in Chapter 7, the lender takes the vehicle and the remaining deficiency balance is discharged. You will need to arrange alternative transportation. In Chapter 13, you can include a replacement vehicle purchase in your plan.

In Chapter 7, wait until after discharge. In Chapter 13, you need court approval to take on new debt during your plan. File a motion to incur debt explaining why a vehicle purchase is necessary. Courts generally approve reasonable vehicle purchases.

Bankruptcy itself does not affect your car insurance. However, some insurers may review your credit-based insurance score. Keep your insurance current throughout the bankruptcy process -- a lapse could be grounds for the lender to seek relief from the automatic stay.

Yes, if the equity in both vehicles is covered by exemptions. Some states allow separate exemptions for each vehicle, while others have a single vehicle exemption. Married couples filing jointly may be able to double the vehicle exemption.

If the car has not been sold, filing bankruptcy triggers the automatic stay and may require the lender to return the vehicle. The longer you wait, the less likely recovery becomes. In some states, the turnover provision under Section 542 requires return of repossessed property.

In Chapter 7, you should continue payments if you want to keep the car. In Chapter 13, car payments are made through your plan. Stopping payments signals to the lender that you may be surrendering the vehicle and they may seek relief from the stay.