Overcoming Personal and Legal Challenges

Overcoming Personal and Legal Challenges

What happens to your car when you file for bankruptcy?

Filing for bankruptcy can be a daunting and complex process. This is especially true when it comes to understanding its impact on your assets, including your car.

The fate of your vehicle and whether you get to keep it largely hinges on the type of bankruptcy you file – Chapter 7 or Chapter 13.

Chapter 7 bankruptcy and your car

In a Chapter 7 bankruptcy, also known as liquidation bankruptcy, you may have to sell your non-exempt assets to repay creditors. If you own a car with significant equity that exceeds Alabama’s exemption limits, you may have to surrender the vehicle before your other debts can undergo discharge. Alternatively, to keep the car, you may have to reaffirm the car loan with the lender. To do so, you must agree to continue paying the debt despite the bankruptcy discharge.

Chapter 13 bankruptcy and car loans

Chapter 13 bankruptcy offers a different approach to car ownership. Instead of liquidating your assets, Chapter 13 allows you to create a repayment plan to catch up on missed payments and retain ownership of your car. You can include your car loan in the repayment plan. This enables you to make manageable payments over a specified period to satisfy the debt. As long as you stick to the repayment plan’s terms, you should not have to surrender your vehicle when you file for Chapter 13.

Whether you file for a Chapter 7 or a Chapter 13 bankruptcy, take some time to consider how each option may affect your car ownership. While filing for bankruptcy can be an effective way to dig yourself out of debt, you must understand its implications so you can make informed decisions.