Can I Keep My Car if I File Bankruptcy?

In most cases, yes you can keep your car after filing bankruptcy. In California, you can exempt, or protect, approximately $30,000.00 of any assets including a car so that they are not sold off to repay your creditors. This exemption is in addition to specific other assets which may have their own limited exemptions. So if your car is worth less than that its all yours.

In a Chapter 13 reorganization, you will definitely be able to keep your car regardless of the value because in a Chapter 13 bankruptcy your assets are not sold to repay creditors. Instead, there is a monthly payment plan based on your disposable income. But if your car has a high value or has high equity in it, then this and other assets that are not exempted may increase your monthly payment amount.

Chapter 7 bankruptcy however, there is a risk of the car being sold off if it cannot be exempted when considering the totality of your assets. We must first determine how much equity there is in a car. Equity is the difference between the fair market value of the car and the loan amount that is owed on it. Car loans are considered “secured debts” in bankruptcy. If the car is completely paid off, then there is 100% equity in the car and thus the entire value must be within the exemption limits. But if there is a loan on the car, and the value of the car is more than what you owe on it, then the only value we need to protect is the equity. If your car is leased, then there is no equity at all and you can keep the car after bankruptcy so long as payments are being made on time. The same applies if your car is financed. If loan balance on the car is more than the car’s market value, then there is no equity and thus no reason to exempt or protect it. Just make sure to keep up with your car payments so that the lender does not repossess the car after your Chapter 7 bankruptcy.

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