Can you keep your car in a bankruptcy?

On Behalf of | Aug 12, 2021 | Personal Bankruptcy

If there is any significant question that keeps coming up involving bankruptcy, it’s, “Can I keep my car?” For many people living in Arkansas, their vehicle is the only way that they can get to and from work, school and other activities. Losing a vehicle in a bankruptcy could be a significant blow to their independence.

The good news is that you may be able to keep your vehicle in a bankruptcy. If that vehicle is still on a lease or payment plan, you may be able to reassume the debt and continue paying. If you choose a Chapter 13 bankruptcy rather than a Chapter 7 bankruptcy, past-due payments may be rolled into the payment plan while the reduction in monthly debt payments may give you enough to pay your car payment on time and in full.

Chapter 7 or 13 can help you keep your vehicle

In a Chapter 7 bankruptcy, one of the most common things to do when you go into bankruptcy but want to keep your vehicle is to reaffirm the debt with your lender. If you already own your vehicle, then you will not be able to do this. Instead, you will need to use exemptions to exclude the value of your vehicle from the bankruptcy.

Reaffirmation agreements do need to be approved by the bankruptcy court. Usually, to do this, the lender will need to reduce the principal balance of the loan or your interest rate. You’ll also need to show that you can still make your payments once the changes go through.

With Chapter 13 bankruptcy, you’ll keep making payments as you always have. You can also add the payments to your Chapter 13 repayment plan in some cases. For example, if you are underwater on the loan, you may want to add the car to the repayment plan to negotiate a reduction in the total cost of the vehicle or the interest rate.

There are options to help you keep your vehicle. Don’t let the fear of losing a vehicle prevent you from investigating if a bankruptcy could help you when you’re struggling financially.