“Bankruptcy and Your Car: What You Need to Know”

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Can You File Bankruptcy and Keep Your Car?

Filing for bankruptcy is a significant decision that can impact your credit for up to a decade. However, if you’re overwhelmed by debt, it can be a necessary step to reset your finances. The fate of your car during bankruptcy depends on several factors, including the type of bankruptcy you file, whether your vehicle is financed, your payment status, and the equity in your car. Here’s what you need to know.

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

Chapter 7 bankruptcy can clear some unsecured debts but may require selling assets to pay creditors. Whether you can keep your car depends on state exemption rules. If your car’s equity is fully covered by state exemptions and you’re current on payments, you can keep your vehicle. If not, the bankruptcy trustee may sell your car, or you might need to pay off the nonexempt equity to retain it.

Can I Keep My Car if I File Chapter 13 Bankruptcy?

Chapter 13 bankruptcy allows you to keep more assets by reorganizing your finances into a repayment plan. You can keep your car if you catch up on loan payments and stay current. If your car’s value exceeds state exemption limits, you can still keep it by paying the nonexempt equity as part of your repayment plan.

What Happens to Your Car Loan When You File Bankruptcy?

In Chapter 7 bankruptcy, you can surrender your financed car to the lender, discharging the loan but losing the car. If you keep the car, ensure you continue making payments to avoid repossession. In Chapter 13, you can also surrender the car or pay off the loan during the repayment period to own it outright.

How to Declare Bankruptcy and Keep Your Car

To keep your car in Chapter 7 bankruptcy, it must be protected by state exemptions, and you must be current on loan payments. In Chapter 13, you need to pay creditors for any nonexempt equity and stay current on payments. Two additional options include:

• Redemption: Pay the lender a lump sum of the car’s value to own it free and clear.
• Reaffirmation: Sign a new contract with the lender to keep the car, provided you can afford the payments.

How Does Bankruptcy Affect Credit?

Both Chapter 7 and Chapter 13 bankruptcies can severely impact your credit for many years. Chapter 7 remains on your credit report for 10 years, while Chapter 13 stays for seven years. This can affect your ability to obtain new credit, loans, or even housing. It’s crucial to monitor your credit and take steps to rebuild it after filing for bankruptcy.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey.

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