A common concern I hear during an initial attorney consultation is, “can I keep my car if I file bankruptcy?” In most cases, with the help of a lawyer, you will be able to keep a car, truck, or other vehicle that you own, provided that you can catch up on past due balances and remain current on your monthly payments. If you are behind on your payments, you can keep your car or truck by filing a Chapter 13 case and repaying your missed payments through a Court approved repayment plan.
You Can Keep Your Car When You File Bankruptcy
Many people are under the mistaken belief that if they file bankruptcy they have to give up their car. This is not true. Your lender does not want to own your vehicle. Your loan lender is in the business of lending money, not owning and storing vehicles at its corporate headquarters. Even if you have a very expensive car, as long as the equity in your vehicle does not exceed your allowable exemptions (exemptions refer to what you are allowed to keep when you file for relief; you are not expected to give up the shirt off your back), you will likely be able to keep your car.
Case in point: a client of mine recently expressed concern as to whether he would be able to keep his top of the line Mercedes-Benz if he filed bankruptcy. This seemed to be one of my client's biggest concerns. He really loved his car. My client needed to file for Chapter 7 in order to get out of debt and get a fresh start but he really wanted to keep his car. As with most of my clients, this client had little to no equity in his car. So I explained to him that yes, he can file and still keep his car. He was so relieved. It was as though a huge weight was lifted from his shoulders. He had been given bad information and had been worrying about nothing. He was not prepared to meet his debts head on and exercise his Federal right to eliminate his debts and get a fresh financial start.
But that’s not all… in addition to being able to keep your car when you file for bankruptcy you may also be able to rebuild a car loan. In a Chapter 7 proceeding, you can rebuild your loan by reaffirming your loan on better terms or redeeming your vehicle for the retail market value, which can be a great deal if you owe a lot more on your vehicle than what it is worth. In a Chapter 13 proceeding, depending on how long ago you took out your loan you can repay only the retail market value, instead of the loan balance, over a 3-5 year period.
If your car is leased, a different rule applies. You can keep the car so long as you assume the lease and continue to make your regular monthly lease payments, the same payments you were making before you filed bankruptcy.
So keep driving your car. Drive it to your consultation with your lawyer and drive it to your hearing at the San Diego Bankruptcy Court. Drive it as you please and when you’re done with your trustee hearing, thank your lawyer, sit behind the wheel of your prized possession that you love, and drive outta bankruptcy!