What Happens To Your Car During A Chapter 7 Bankruptcy?

Bankruptcy Lawyer Bryan W. Stone answers the question: “Can I keep my car if I file bankruptcy?”


Knowing whether or not to file for bankruptcy can be a difficult decision. You will likely need to weigh a variety of factors, including your income, future prospects, total assets, total debts and the impact that filing can have on your life, in both the short term and over the long haul. Another question that many people consider is how filing for bankruptcy can impact their ability to operate as usual, including staying in their house and continuing to drive their current vehicles. To learn more about what happens to your car during Chapter 7, keep reading.


Toy Car Charlotte Chapter 7 LawyerWhy Chapter 7?


Though your car can be impacted in other forms of bankruptcy, Chapter 7 is the one that stands the greatest chance of causing a noticeable change. The reason is that in a Chapter 13 bankruptcy, your debts are restructured into a payment plan, meaning you can continue paying these debts and thus continue to keep the underlying asset, in this case, a car. The same isn’t true under Chapter 7, where your debts are liquidated.


What if you own the vehicle?


First things first, if your vehicle is paid off then chances are you will be able to keep it after declaring bankruptcy. So long as its value is low enough to fall within your state’s vehicle exemption, then the bankruptcy trustee won’t insist on selling it. Should you have a fully paid for vehicle that also happens to be worth a lot of money, it’s possible that the trustee could sell the car as an attempt to raise money for creditors.


Choices under Chapter 7


If, like many people, you owe money on your vehicle then, under a Chapter 7 bankruptcy, you will have two choices: 1) keep the vehicle or 2) surrender it.


To keep the vehicle, one approach is to do a redemption. A redemption means you pay the bankruptcy trustee the value of the vehicle in a lump sum. This allows you to get out from under the debt and hold onto the vehicle. Another approach would require you to sign a reaffirmation agreement. A reaffirmation agreement works for those who can’t afford to make a lump sum payment, but are able to afford continued monthly payments on the vehicle. Reaffirmation takes the vehicle, and it’s associated debt, outside of the bankruptcy process. This can be a good thing because you’re able to hold onto the car, but can pose problems for those who really weren’t able to afford the vehicle and end up back in a financial mess after the bankruptcy is done. It should be noted the bankruptcy court would need to approve signing any reaffirmation agreement, basically a way of ensuring that the debtor isn’t overly burdened by agreeing to continue paying on certain debts.


Surrendering the vehicle is pretty easy; all you need to do is decide to walk away from the car. Once you’ve made the decision, simply list on your filing statement that you intend to forfeit the vehicle and your loan will be discharged as part of your overall bankruptcy. It’s worth mentioning the same rules apply with vehicles that are under a lease.


If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.


About the Author

Kyle Frost Bankruptcy Lawyer Student loan attorneyKyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology.  He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.

Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.

In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.






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