Can I Keep My Car If I File for Chapter 7 Bankruptcy?

In chapter 7 you can keep the car if the equity in your car is $0 or exempt based on the automobile exemption amount allowed in your state.

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Can you keep your car, van truck, motorcycle or other my motor vehicle if you file for Chapter 7 bankruptcy? The answer depends on how much equity you have in the car and your available exemptions.

If you have no equity in your car (meaning the value of your car is less than the amount you owe on your car loan) or the equity you have is exempt in your state, you can keep your car in Chapter 7. And if you have a wildcard exemption available to you, you can apply that amount to your car as well.  (To find exemption amounts in your state, see Bankruptcy Exemptions by State).

Examples

1. Debtor has a car that is fully paid.

The debtor has a 1999 Toyota Corolla that is paid off. The debtor lives in a state with a $4,000 motor vehicle exemption. If the Kelly Blue Book price for the car is $2,000, then the debror can exempt all of his or her car equity and can keep the car.  

2. Debtor has a car that is not fully paid.

The debtor owns a 2008 Hyundai Accent valued at $5,000. The debtor still owes $2,000 on the car. The debtor's state has a car exemption amount of $4,000. In this case, the debtor has equity in the amount of $3,000, which is covered by the state car exemption. He can keep his car. However, in order to avoid repossession, he must continue to make his car payments. Some companies require the debtor to sign a reaffirmation agreement -- this essentially makes a new loan agreement between the debtor and car loan lender.  The downside: If the car is later repossessed and the lender goes after the debtor for a deficiency, the debtor will be on the hook for the deficiency.

3. Debtor has a car that is fully paid and the equity is more than the car exemption amount.

The debtor has a 2007 Acura Integra worth $6,000. The state car exemption is only $4,000. Because the debtor cannot exempt the full amount of car equity, he or she cannot keep it. However, if the state has a wildcard exemption, the debtor can add this amount to the car exemption. In this example, if the wildcard is $5,000, the debtor can use $2,000 of that wildcard, add it to the $4,000 car exemption, and that way exempt the entire amount of car equity. 

Updated by: , J.D.

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