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

If you find yourself in a place where bankruptcy is the only way forward, you might wonder how the process will affect your personal belongings. An especially common concern is whether you’ll be able to keep your car. Here we will discuss the variables that come into play along with some smart steps and strategies to help you keep your car when filing for chapter 7 bankruptcy.

Chapter 7 Bankruptcy and Your Car

One key element that will affect the outcome is how much equity you hold in your car. To determine equity you first need to know your vehicle’s value, less any outstanding debt. This term will come up again and again, so it’s good to know. 

Understanding the basic premise of a chapter 7 bankruptcy filing is also important. Chapter 7 filings are often referred to as liquidation because property and assets can be sold to pay off debt. But because this could mean a serious hardship for you when you are already in a tough spot, exemptions often allow you to keep some personal property. For example, the Ohio chapter 7 car exemption of $4,000 can be used to offset equity, and the Ohio wildcard exemption of $1,325 could also be applied. 

If your vehicle is paid for and worth less than, as much as, or only slightly more than $4,000, you have no need to worry about losing your car – the exemption amount covers it. But even if the value is a bit more, the wildcard exemption could still apply. Where things might get dicey is if your car’s equity far exceeds applicable exemptions. In that case it could be worth the expense and effort for the trustee to sell the vehicle, disburse the exemption amount to you, and then use the rest to pay your creditors.

Can I File Chapter 7 Bankruptcy and Keep My Car Loan?

Assuming that you are current on payments and your car’s equity is roughly equal to or less than applicable exemptions, you are in the clear. But if you owe far less than the car is worth, equity will be high, and even the wildcard exemption might not even the score. In that case, the trustee might determine that it is worth seizing and selling the car to pay off your loan and creditors, after disbursing the equity exemption to you. 

If you are behind on payments, you would have to either take care of the back-owed sum or the lender would need to agree to a reaffirmation agreement and new payment terms before proceeding. But if for any reason you again fall behind on payments, your finance company could move to repossess your car.

It could be that you might owe far more than the vehicle is worth and the trustee has decided against selling your vehicle. In this situation you have two options: redeem or surrender. If you opt to redeem you will be responsible for the difference between what the car is worth and what you owe, to be paid in one lump sum. But this could be a large amount to come up with if you are already in financial straits. Surrendering is a way to get out from under debt and walk away from both the car and the loan.

Can I File Chapter 7 Bankruptcy and Keep My Leased Car?

Filing for bankruptcy automatically blocks any efforts by a car lessor to repossess your vehicle. If you are up-to-date on payments the trustee will then decide whether they will assume or reject the lease. If assumed, you will need to verify that you can faithfully make lease payments and the lease will continue as written. But if the trustee rejects the lease or if payments have fallen behind, the lessor could try to repossess your car. 

On the other hand, you could opt to voluntarily surrender the car to get out from under the monthly payments. In either case, if the surrendered car is ultimately sold for less than you owed, the remaining sum will likely be included in your total bankruptcy filing.

Rely on Your Local Bankruptcy Lawyers

Bankruptcy is naturally going to be an upset to your life, but 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, know that you are not alone in this process. 

Get in touch with the experts at Hausen Law, LLC and our Northeast Ohio Bankruptcy Attorneys can weigh in. Call us directly or complete our online contact form to schedule a free bankruptcy consultation. We proudly serve the Akron and Canton communities and are here to help.