How to File for Bankruptcy and Keep Your Car

Filing for bankruptcy can be a daunting process, but it can also provide a fresh start for those struggling with debt. If you’re worried about losing your car in the process, there are options available to help you keep it. In this article, we’ll walk you through the steps to file for bankruptcy and keep your car, including important considerations and requirements.

Summary: You may be able to file for bankruptcy and keep your car by either using the vehicle exemption if you own your car, or if you have a car loan, by redeeming your car or entering into a reaffirmation agreement.

Use an Exemption to File for Bankruptcy and Keep Your Car

If you own your car outright and the value of your car falls within the vehicle exemption limit, you may be able to keep your car without having to pay any additional amount to the bankruptcy trustee. The vehicle exemption is a set amount of value that is protected in bankruptcy and varies by state. However, the federal vehicle exemption limit is $4,450. This means that if the value of your car is equal to or less than $4,450, you may be able to keep it during bankruptcy without having to sell it to pay off creditors.

To determine whether your car is exempt, you’ll need to know its current value. You can use online resources such as Kelley Blue Book to estimate your car’s value. If the value is equal to or less than the vehicle exemption, you may be able to keep your car in bankruptcy without having to pay any additional amount to the bankruptcy trustee.

Use Redemption to Keep Your Car

If you have a car note, you may be able to keep your car by redeeming it. Redemption is a process in bankruptcy where you can pay the current fair market value of an item you own that is secured by a loan, such as a car, instead of the full amount owed on the loan. By doing so, you can keep the item and eliminate the remaining debt owed on the loan.

For example, let’s say that you owe $10,000 on your car loan, but the current value of your car is only $6,000 because your car’s value depreciated. Redemption allows you to pay the current value of your car, which is $6,000, to the creditor instead of the full $10,000 owed on the loan. Therefore, by redeeming your car, you can file for bankruptcy and keep your car.

The redemption method would eliminate the remaining $4,000 of debt owed on the loan. However, keep in mind that redemption requires a lump-sum payment, so you’ll need to have the funds available to pay for the fair market value of your car at once.

If you plan to redeem the car, you will have to say so on the Statement of Intention for Individuals Filing Under Chapter 7 (Form B 108).

You can find the law that talks about redeeming property in the Bankruptcy Code at 11 U.S.C. § 722.

Use a Reaffirmation Agreement to File for Bankruptcy and Keep Your Car

If you have a car note and cannot afford to redeem your car, you may be able to file for bankruptcy and keep your car by entering into a reaffirmation agreement with your lender. A reaffirmation agreement is a legally binding agreement between you and the lender that allows you to keep the car and continue making payments on the loan.

Under a reaffirmation agreement, you agree to remain liable for the car loan and continue making payments on the loan even after your other debts are discharged in bankruptcy. The lender agrees to allow you to keep the car as long as you continue making payments.

If you want to enter into a reaffirmation agreement with a creditor, you have to catch up on any missed payments, unless you and the creditor agree on a different payment arrangement. Additionally, reaffirmation agreements are voluntary, meaning you’re not required to enter into one to keep your car.

If you decide to enter into a reaffirmation agreement, it must be approved by the court. You’ll need to demonstrate to the court that the agreement is in your best interest and that you’ll be able to continue making payments on the loan.

You will also have to state whether you plan to enter into a reaffirmation agreement on the Statement of Intention for Individuals Filing Under Chapter 7 (Form B 108).

You can find the law that talks about reaffirmation agreements in the Bankruptcy Code at 11 U.S.C. § 524.

Beware of Guarantees to Keep Your Car in Bankruptcy

If you have a car loan, it’s important to be cautious of anyone who claims they can guarantee that you’ll be able to keep your car in bankruptcy without redeeming it or entering into a reaffirmation agreement. No one can guarantee the outcome of a bankruptcy case, as it ultimately depends on your specific situation and the decisions of the bankruptcy court.

In some cases, individuals or companies may make unrealistic promises or guarantees to people going through bankruptcy. One example is an attorney who received disciplinary action for an advertisement that stated, “Bankruptcy, but keep house car.”

The case where the attorney received disciplinary action is In the Matter of Anonymous, 775 N.E.2d 1094 (Ind. 2002).

Always be wary of anyone who promises guaranteed results in a bankruptcy case. Instead, seek guidance from a reputable bankruptcy attorney who can provide you with honest and accurate advice based on your specific circumstances.

Conclusion

Filing for bankruptcy can be a stressful and overwhelming process, but it doesn’t necessarily mean that you have to lose your car. By understanding your options and working with an experienced bankruptcy attorney, you can protect your assets and move forward with a fresh financial start. Remember to consider all the factors involved in the bankruptcy process, including exemptions, redemptions, and reaffirmation agreements to ensure that you make the best decisions for your specific situation.