Can I Keep My Car if I File for Chapter 13 Bankruptcy?

Can I Keep My Car if I File for Chapter 13 Bankruptcy?

Sometimes, bankruptcy becomes the only way forward. If you find yourself facing chapter 13 bankruptcy you’re probably anxious to know whether you can keep your personal belongings. This scenario is especially concerning if a vehicle is involved. Let’s look into a few factors you need to understand when considering chapter 13 bankruptcy, along with guidance on keeping your car. 

Chapter 13 Bankruptcy and Your Car

Your car’s equity is a term that will come up again and again, so it’s good to understand what it means. A simple calculation can help you to determine equity: first know your vehicle’s value, then subtract any outstanding debt.

Knowing the underlying premise of chapter 13 bankruptcy is also key. Often referred to as reorganization, this type of filing focuses on consolidating debts into one court-appointed repayment plan and makes it easier for you to keep your property. You will still repay debts to creditors, and it could be similar to the amount that would have been paid through a chapter 7 filing, but the method is different. 

Does this mean that you don’t have to worry about losing your car? The simple answer is yes. But specific scenarios could present a variety of factors worth considering.

Can I Keep My Paid-for Car?

In chapter 13 filings you don’t need to worry about losing your vehicle, but you might end up paying to keep it. The trustee appointed to your case will use your vehicle’s equity to determine how much – if any – of its value needs to factor into your repayment plans. It’s good to know that in Ohio, a $4,000 car exemption can be applied to offset equity and potentially reduce your payments. The Ohio wildcard exemption of $1,325 might also be applied. So if your car’s value is as much as or less than the state exemption(s), you won’t have to pay to keep the vehicle.

If your car’s value is far higher than applied exemptions, then the remaining sum will be factored into your total debt. The trustee will develop a repayment plan that splits up your total debt into payments that span three or five years’ time. Clearly, lower equity means lower payments and a smaller total debt owed to creditors.

Where it might get tricky is if your equity in the car is high, because while you keep the car, you could end up with a large sum due to creditors. If payments become unrealistically high, or if you are making payments on more than one vehicle, you could find yourself in a situation where you need to surrender the car.

Can I File Chapter 13 Bankruptcy and Keep My Car Loan?

Yes, you certainly can. If you are still paying on your vehicle and up-to-date, your payments will be wrapped into your bankruptcy repayment plan. If you have fallen behind in payments, you can still wrap your payments into the bankruptcy repayment plan.

If your car ends up being worth less than what you owe on it and was purchased roughly two and a half years prior to filing for bankruptcy, it is possible that you will only be held responsible for the car’s current value. This is called a “cramdown” and in that case your payments could end up being lower overall. 

Can I File Chapter 13 Bankruptcy and Keep My Leased Car?

Much like a car with an outstanding loan, if you are up-to-date on payments you can keep right on paying and retain the car. If you are behind in payments, you will need to work out a payment plan for the back-owed amount and then keep current in the future. 

Of course if you would prefer to you can always surrender the car – the proceeds of its sale will be applied to your debt. If there is any discrepancy between the price the car fetches and its stated value, you will be held responsible for that sum. Thankfully that can also be wrapped into your chapter 13 payment plan.

Rely on Your Local Bankruptcy Lawyers

Bankruptcy can be a stressful time, but be assured that you aren’t alone. While the process will naturally be an upset to your life, working with an experienced Akron bankruptcy attorney will ensure the best possible outcome. This is especially true when you hope to keep your vehicle and other property.

If you need help to decide whether chapter 7 or chapter 13 bankruptcy could benefit your situation, reach out to the experts at Hausen Law, LLC and our Northeast Ohio Bankruptcy Attorneys can weigh in. Call our office or complete our online contact form to schedule a free bankruptcy consultation. We proudly serve the Akron, Canton, Wooster, and New Philadelphia communities and are here to help.