Filing for bankruptcy can feel like a major turning point in your life. It’s a way to get relief from overwhelming debt—but it also comes with many questions and concerns. One of the most common is: how to file bankruptcy and keep your car?
For many people, a vehicle is more than just a convenience—it’s a necessity. Whether it’s commuting to work, dropping kids at school, or running daily errands, your car plays a key role in your everyday life. The good news is that in many cases, you can file for bankruptcy and still keep your car. Here's how.
What Happens to Your Car in Bankruptcy?
When you file for bankruptcy, your financial situation is reviewed by the court. This includes your debts, income, and all the assets you own—including your car. Whether or not you can keep the vehicle depends on several things:
- The type of bankruptcy you file
- The value of your car
- How much you owe on it
- The exemption laws in your state
If your car is necessary for daily living and you manage the process wisely, there are clear ways to hold onto it through bankruptcy.
Types of Bankruptcy: Chapter 7 vs. Chapter 13
Understanding how to file bankruptcy and keep your car begins with knowing which type of bankruptcy fits your situation.
Chapter 7 Bankruptcy
Also called "liquidation bankruptcy," Chapter 7 helps discharge most unsecured debts, like credit cards or personal loans. However, if you have valuable assets, including a car with a lot of equity, they could be sold by the court to pay creditors—unless the asset is protected by an exemption.
To keep your car in Chapter 7:
- Your vehicle equity must be within your state’s exemption limits.
- You must stay current on your car payments (if there’s a loan).
- You may need to reaffirm the car loan—agreeing to continue payments.
Chapter 13 Bankruptcy
This option is often more flexible if you're trying to keep property. Chapter 13 allows you to set up a payment plan over 3 to 5 years, helping you catch up on missed payments and avoid repossession.
To keep your car in Chapter 13:
- You can include late payments in your repayment plan.
- You must prove you can afford to make regular payments going forward.
- You typically retain possession of your vehicle throughout the plan.
Car Exemptions: What Can You Protect?
One of the most important steps in learning how to file bankruptcy and keep your car is understanding exemptions.
Exemptions are laws that protect certain property from being taken during bankruptcy. Each state has different exemption rules—and some allow you to choose between state and federal exemptions.
If the value of your car (minus what you owe) is below the allowed exemption amount, you’ll likely be able to keep it. In some cases, wildcard exemptions can also be used to protect vehicles with higher value.
Example:
- Your car is worth $6,000
- You owe $3,000 on it
- Your state’s car exemption is $4,000
Your equity is $3,000, which is within the exemption limit—so you can keep the car.
Other Strategies to Keep Your Car
Besides exemptions, there are other tools that can help you retain your vehicle:
1. Reaffirmation Agreement (Chapter 7)
This is a formal agreement where you commit to continue making car loan payments during and after bankruptcy. In return, the lender agrees not to repossess the car. This works best if you’re currently on payments and confident you can afford to keep paying.
2. Redemption (Chapter 7)
With redemption, you pay the current market value of your car in one lump sum—even if you owe more. This clears the loan and gives you full ownership. It’s useful when your car is "underwater," but requires enough cash to make the payment.
3. Chapter 13 Repayment Plan
In Chapter 13, you can catch up on late car payments over time. This option prevents repossession and allows you to keep making manageable monthly payments while keeping your car.
Why Accurate Valuation Matters
Accurately valuing your car is essential. Overestimating its value could put it over exemption limits and risk losing it. Use trusted car valuation tools or professional appraisals to determine a fair market value.
Should You Hire a Bankruptcy Attorney?
Understanding how to file bankruptcy and keep your car involves a mix of legal rules, state exemptions, and loan terms. A bankruptcy attorney can help you:
- Choose the right type of bankruptcy
- Maximize your exemptions
- Negotiate with creditors
- File the correct paperwork
While hiring an attorney comes with a cost, it often helps avoid mistakes that could lead to losing your car.
Final Thoughts
Filing for bankruptcy doesn’t have to mean giving up your vehicle. With the right information and strategy, you can protect your car and move toward a fresh financial start. Knowing how to file bankruptcy and keep your car is the first step—and with the support of legal advice and proper planning, you can successfully navigate the process and hold on to what matters most.
