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Do you lose your car if you file bankruptcy?

In the majority of cases, you will not lose your car if you file bankruptcy.

If you don't still have car payments...

If you own your car free and clear of any loans against it, you can likely protect it by an exemption. Exemptions are usually provided by state law and are amended from time to time to keep up with inflation. The practical effect of an exemption is that it prevents the bankruptcy trustee from selling your property unless they can pay you the full amount of the exemption out of the proceeds of a sale. For example, if you could claim a $5,000 exemption in your vehicle and your vehicle could not be sold for more than $5,000, then the Trustee would not sell your car. The Trustee will only sell assets if they can get proceeds for the estate to pay your creditors. If you have multiple vehicles or vehicles valued in excess of $30,000 in value with no loans on them, your exemptions would not likely be able to cover this amount of value. In that situation, the Trustee would ask that you pay the estate the amount of the unexempt value to keep the car or turnover the car to be sold.

If you have a car loan or lease...

If you are financing or leasing a car, you may still need to file a bankruptcy right away for credit cards or medical debts. If there is a loan on your car, you would need to reaffirm the debt on the car in your bankruptcy and continue to make the payments on time. Reaffirming the car will mean that the debt is not discharged in your bankruptcy and that you still are liable on the contract if you default and there is a deficiency. You generally reaffirm the car on the same terms as the initial loan. A deficiency occurs when the car is sold at auction by the creditor for less than the amount you owe on the car. Leases are similar in that if you want to continue on the lease you assume that lease. A lease assumption means you agree to abide by the terms of the lease that existed prior to the bankruptcy. You can also redeem the car through a special procedure in bankruptcy. This requires you to pay the full market value for the car, which people are rarely in a position to do.

If you don't want the car anymore...

Maybe you paid too much for your car, your car is worth way less than what is owed, or your financing terms were less than desirable. In that situation, you can surrender the car in your bankruptcy back to the creditor and discharge any further liability on the contract. This means that if the car is sold by the creditor and you still owe after the sale, the amount you still owe is discharged in the bankruptcy.

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