Monday, April 1, 2013

Cars, Cars, Cars......what happens to my car when I file bankruptcy?

As a chapter 7 and 13 bankruptcy attorney one of the most common concerns that I hear from potential clients relates to their cars.

In bankruptcy several things can happen to your car depending on your situation. What happens to your car depends on several factors including:
  • is there a loan against the car?
  • if there is a loan, are the payments current?
  • what is the value of your car?
  • what is the loan balance, if any?
  • what chapter of bankruptcy will you file?
  • do you want to keep the car? if so, can you afford it?
  • how long ago did you finance the vehicle?
As you can see, many factors go into answering the common question of "what happens to my car when I file bankruptcy?"

Under most circumstances, the general rule is if you want to keep your car, and can afford to keep it, you will keep your car if you file bankruptcy.

In Chapter 13 many times car loans can be restructured. You may even have a lower chapter 13 payment than what your current car payment is.  If you financed your car over 2.5 years ago, or if your current loan is a refinance, or other non purchase money loan, you may qualify to do a "cram down" on the loan. This means that you restructure the car loan in a chapter 13 based on the value of the vehicle, not what you owe on the vehicle. 

In Chapter 7 many lenders allow you to keep your car loan after bankruptcy as long as you remain current. Some lenders will require a debtor to "reaffirm" their car loan in order to keep it. A reaffirmation is a new agreement after filing binding the debtor to the loan. A reaffirmation is a serious decision and a debtor should consult carefully with their attorney before agreeing to sign it.

If your car does not have a loan on it you may keep it in a chapter 13 bankruptcy. If you file chapter 7 you may keep the car if the value is equal to, or less than what the applicable exemption is for the asset. If the car is in danger of being liquidated by a chapter 7 trustee a good attorney should be able to tell you well before the case is filed that it is an issue. Even if the car value is over th exemption you may be able to work out an agreement with the chapter 7 trustee to keep the car and pay the trustee the non-exempt equity.

This information is a very general overview of cars and bankruptcy. For more information based on your specific situation you should consult a qualified bankruptcy attorney.  More information about our firm may be found at