How to File for Bankruptcy and Keep Your Car
When people think about bankruptcy, one of their biggest fears is losing their car. Concerns about transportation are among the biggest barriers to declaring bankruptcy. Here’s the good news: in most cases, you can keep your car whether you file Chapter 7 or Chapter 13. But here’s the better news: even though you can probably keep your car, you may not want to. In fact, for many people, replacing a bad car loan during bankruptcy is one of the smartest financial decisions they’ll ever make. In this article, then, we’ll take a look at how to file for bankruptcy and keep your car, but we’ll also take a look at your other options.
Yes, You Can Usually Keep Your Car
Before we dig into why you might want to replace your car, let’s quickly address the question at the heart of this article: how to file for bankruptcy and keep your car. Whether you file Chapter 7 or Chapter 13, the law includes exemptions that allow you to protect certain property, including your vehicle. If your car’s equity is under the exemption limit in your state, you get to keep it. Even if it’s not, Chapter 13 can allow you to keep the car and pay back the excess value through a court-approved payment plan.
Watch and Learn: What Can I Keep When Filing Chapter 7
So yes, you can usually keep your car when you file bankruptcy. But the more important question might be: should you?
Why Keeping Your Car Might Not Be the Best Option
Before you move forward with how to file for bankruptcy and keep your car, it’s worth asking whether that’s actually the best move for your financial recovery.
Most people filing for bankruptcy are already under intense financial pressure. They’ve fallen behind on payments, drained their savings, and made impossible trade-offs just to get by. And when money is tight, routine car maintenance is one of the first things to go.
That means by the time you file bankruptcy, your vehicle might have:
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- Missed oil changes
- Bald tires
- Delayed repairs
- A loan with sky-high interest
- Negative equity (you owe more than the car is worth)
But even if you love your car and have taken great care of it, it may not be worth keeping. In many cases, people end up reaffirming their car loan without fully understanding the long-term consequences, so let’s take a look at reaffirmation.
Watch and Learn: What Can I Keep When Filing Chapter 13
What Is Reaffirming Debt?
Reaffirming debt during bankruptcy means you agree to remain legally responsible for a debt even after your bankruptcy is complete. In other words, you’re choosing not to include an otherwise dischargeable debt in your bankruptcy. If you reaffirm your car loan, you get to keep the car, but it also means you’re stuck with the original loan terms, even if they’re terrible.
Reaffirming a bad loan or trying to keep a car that’s falling apart can cost you more in the long run. You’ll be locked into paying for a vehicle that may already have high mileage, mechanical issues, or negative equity. And to make matters worse, reaffirmed debts often don’t report to the credit bureaus, so making those payments won’t even help you rebuild your credit score.
Are you considering bankruptcy? Book a call for a free consultation, and get your questions answered!
Why Chapter 7 Bankruptcy Is the Perfect Time to Replace Your Car
When you file Chapter 7, your debt-to-income ratio improves almost instantly. That makes you more appealing to lenders, especially those that understand bankruptcy. And because you can’t file Chapter 7 again for another eight years, lenders know you’re a lower risk.
Now, will it be the car of your dreams? Maybe not. But it will likely be reliable, affordable, and a much better deal than continuing to throw money at a car that’s falling apart. And more importantly, it sets you up to qualify for something better down the road, once your credit is fully rebuilt.
Bankruptcy resets your financial profile. And that creates a short window where replacing your car is easier than you might expect.
What If You’re in Chapter 13?
If you’re filing Chapter 13, you’re not out of luck. Many people researching how to file for bankruptcy and keep your car are surprised to learn that Chapter 13 actually gives you more flexibility in some cases. Not only can you keep your car in a Chapter 13, but you can also buy a new car. The process looks like this:
- You find a vehicle that fits your budget.
- Your attorney submits the proposed financing to your trustee.
- The trustee approves a monthly payment and interest rate.
- Financing is finalized, and your car is delivered.
The Smart Way to Replace a Car During Bankruptcy
For many people, replacing a car during bankruptcy feels overwhelming, so it helps to work with a dealership that specializes in providing cars to people who have been through bankruptcy. Some, like Ash Auto Group (which has an online dealership), focus exclusively on helping people in bankruptcy find reliable vehicles, secure financing, and navigate the legal process alongside their attorney and trustee. These dealerships understand the court approval process for Chapter 13 cases, offer warranties and gap insurance, and report on-time payments to help rebuild your credit.
Buying a Car with Ash Auto Group
Real Talk: Why You Shouldn’t Keep a Car That’s Holding You Back
Let’s be honest: if you’re filing bankruptcy, your car might be part of the problem. Maybe it has repairs you can’t afford. Maybe you’re paying 20%-plus interest. Maybe you owe thousands more than the car is worth.
Even if your initial goal was to figure out how to file for bankruptcy and keep your car, bankruptcy can open the door to smarter options. You’re already doing the hard work of resetting your finances. Don’t drag an old problem into your new chapter.
Replacing your car during bankruptcy might not be what you expected, but for many people, it’s the key to getting back on track. You get transportation that works, payments that fit, and a chance to start rebuilding credit immediately.
