If you are facing bankruptcy you might be worried about whether you can keep your car. There are several options available if you want to retain your car depending on what kind of bankruptcy you decide to file.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, also called "liquidation" bankruptcy, you are allowed to keep certain exempt property, including motor vehicles. Your ability to keep your car depends on certain factors. Whatever you decide to do with your car, you must let the bankruptcy court know what you want to do by filing an official form called the Statement of Intention (SOI) as well as mailing a separate copy of the SOI to your vehicle lender.
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There are two ways you may keep your car after filing for Chapter 7 Bankruptcy: redemption and reaffirmation. You may also choose to walk away from the car, which will clear you of any further liability on the debt after your bankruptcy.
Redemption
Redemptions allow you buy back the car from the bankruptcy estate for the present value of the car. You can do this by paying the lender the replacement value of the car in a lump sum. For example, a debtor may redeem a car note by paying the lender the amount a retail vendor would charge for the car, considering its age and condition.
Reaffirmation
A reaffirmation is an agreement that you make with a lender after filing for bankruptcy where you agree to take the debt out of bankruptcy protection and continue to make payments pursuant to your loan terms. Reaffirmations are voluntary, must be in writing, and must be approved by the bankruptcy court to be effective. For example, you might make a reaffirmation agreement with the holder of a car note that you can keep the car and must continue to pay the debt after bankruptcy.
Exemption
If you aren't making payments on a car, then you'll be able to keep it if its value falls under your state's vehicle exception amount. In California, the exemption amount is $2,300. This means that if the car's equity is less than $2,300, you are entitled to keep your car. Equity is determined by subtracting the present day value of your car by the amount still owed on the loan. If your car's equity is greater than the exemption amount, then there are two ways in which you can keep the lender from repossessing your car.
If none of these options are realistic for you, you can eliminate your car debt by simply handing over the keys to the creditor.
Car Leases in Chapter 7 Bankruptcy
If you are leasing your car when you file Chapter 7 bankruptcy, you can choose to either continue making the monthly lease payments and keep the car, or surrender the car back to the creditor. If you surrender the leased car, any obligation to the lease will be eliminated.
This process can be confusing and is much more detailed than can be contained in this general article. Whether you decide to choose either redemption or reaffirmation depends on the facts and circumstances, so you should consult a licensed bankruptcy attorney in deciding the best course of action regarding your vehicle when filing for bankruptcy.
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