Part 2. I need to file for bankruptcy protection. Will I lose my car?
Short Answer: No. It is not true that you must give up your car if you file bankruptcy. When you file, you have the option to keep your car.
I’ve met with countless people who have stated that they’ve prolonged considering bankruptcy because they cannot “afford” to lose their vehicle. The truth is, if you file for Chapter 7 or Chapter 13 bankruptcy then in most situations you have the option to keep your vehicle.
If you own a vehicle and are considering bankruptcy, the first question I would ask you is whether your vehicle is secured by a loan. In other words; is your car paid off?
If you still owe money on your vehicle, then you would have the option to retain your vehicle in the bankruptcy and enter into a reaffirmation agreement with the lender. You can also choose to surrender, or “give up”, your vehicle. The choice is yours.
If you choose to keep your vehicle and your vehicle is secured by a loan, then you would elect to retain your vehicle in your Statement of Intention which is part of your bankruptcy filing. Your creditor would then send you (or your attorney) a reaffirmation agreement for you to sign and to be filed with the Court. A reaffirmation agreement is essentially a new contract between you and your creditor that will survive the bankruptcy. Simply put, you get to keep your car.
If your vehicle is secured by a loan and you do not want to retain your vehicle then you would indicate your intent to surrender your vehicle in your Statement of Intention. In this situation, the creditor can obtain permission from the Court to repossess the vehicle while you are in the bankruptcy, or may choose to wait until your bankruptcy is over before repossessing the vehicle. In either case, once the vehicle is repossessed and sold, the deficiency, or unpaid amount on your loan would be a discharged debt in your bankruptcy.
In some instances, you might have equity in your vehicle. If your vehicle is paid off, then you have equity in your vehicle. Similarly, if your vehicle is worth more than what is owed on it, then you also have equity in your vehicle. In these situations, we would discuss the value of your vehicle. In Oregon you are allowed to have $3,000 of equity in your vehicle that can be exempted in your bankruptcy schedules. Under federal law, the exemption is $3,775. In other words, your car can be worth up to the amount of the exemption and be protected. If your equity in your vehicle is more than the allowable exemption, then you may qualify for a “wildcard” exemption to protect the remainder of the equity in your vehicle.
There are situations when you might run into problems with the allowable exemptions. For example, if you have a significant amount of equity in your vehicle, or if you own multiple vehicles.
Even though it is a myth that you cannot keep your car when you file for bankruptcy, the bankruptcy rules are complicated. If you have one or more vehicles and you are planning to file for bankruptcy, then you should consult with a bankruptcy attorney to determine your options regarding your vehicle and to discuss the best ways to protect your assets when you proceed with bankruptcy.
We are a debt relief agency. We help people file for relief under the Bankruptcy Code.
The information and materials provided in this article have been prepared for informational purposes only and do not constitute legal advice and do not constitute an attorney-client relationship between you and this law firm. If you believe you have a legal case or claim, you should contact an attorney promptly; strict time limitations may apply to your case or claim.