Many people mistakenly think of bankruptcy and assume that it necessarily involves liquidation of all one’s assets—including your home, car and anything else valuable you might own. On the contrary, there are several different bankruptcy options, and you can retain certain assets in many cases. In short, it is entirely possible to keep your car and successfully file for bankruptcy.
This depends largely on whether you elect to file for Chapter 7 or Chapter 13. In Chapter 7, you may be required to liquidate certain assets, but a car may be an exemption. In Chapter 13, all assets are protected from liquidation. Gain insight on how to keep your car during bankruptcy.
Stay current on your payments
One stipulation of keeping your car in bankruptcy is that you have to be current on your payments. According to Bankrate, if your payments are in default, you are likely to have the car seized in bankruptcy. An exception, however, is if you pay off the arrears or work with your lender to reorganize the debt and establish a payment plan. The latter is an option if you file for bankruptcy.
Redeem the car in Chapter 7
In Chapter 7 bankruptcy, debtors have the option to redeem their car and thus avoid liquidation. This process involves paying the lender a sum equal to the car’s replacement value. If the car is a qualified exemption, this can allow you to keep the vehicle safe from liquidation when you file for bankruptcy.
Consider the car’s equity
Sometimes a car may appreciate in value, and in such cases, you will need to find out whether the equity it has gained is exempt from seizure. Typically, there is a limit on the exemption value of a vehicle, and if the equity exceeds this limit, the car may be subject to sale to pay off unsecured debts. An attorney may be able to help you avoid this by utilizing other exemptions, however.