Can They Take My Car in a Private Bankruptcy in the US?

By John Stevens J.D.

The vast majority of consumers file for bankruptcy under Chapter 7 or Chapter 13. Chapter 7 bankruptcy allows the court to sell any item that is not exempt under the bankruptcy laws and to distribute the proceeds from that sale to the debtor’s unsecured creditors. Chapter 13 requires debtors to make monthly payments to pay down the debts owed. The Chapter 7 process takes approximately 90 days to complete, while the Chapter 13 process typically takes between 3 and 5 years. At the end of both processes, all but certain legally excepted debts will be discharged. Since Chapter 13 involves paying down debts, you are most at risk of losing your car under Chapter 7. However, there are some ways of holding onto it.

Surrender or Redemption

If you have a loan on your vehicle, with little or no equity, you could simply decide to stop paying and give the car back to the lender. This is called “surrendering.” However, if you want to keep the car and can afford it, you can buy the car from the auto lender for the current fair market value of the vehicle. This is called "redemption." To redeem a car, the you must have used the car for personal reasons rather for a business purpose.

Reaffirming the Car Loan

If you have been keeping up with loan payments and want to keep your car after bankruptcy, you may choose to reaffirm the loan. In this case, you agree to continue paying off the loan after the bankruptcy process concludes.The lender must agree to reaffirming the loan, and if you fail to make timely loan payments, the lender may then repossess the car.

Ready to start your LLC? Start an LLC Online Now

Bankruptcy Exemptions

Whether or not you take action to keep your car under Chapter 7, the trustee may not end up selling it in bankruptcy under certain circumstances. If the balance of your car loan is more than the car is actually worth, the trustee will not take your car because selling it would not bring in enough to pay off the loan. Most state bankruptcy laws also allow for certain vehicle exemptions. Exemptions protect equity rather than the total value of the asset, so the exemptions for cars apply whether or not you have a car loan. If your car is worth more than the loan balance, or you own the car outright, whether the trustee would sell the car depends on the exemption. Let's say the vehicle exemption is $3,000. If the amount of equity you have in your car is greater than $3,000, the trustee might take the car, sell it and use the proceeds to pay creditors. If the amount of equity was less $3,000, the trustee would not take the car because it fell under the exemption.


Abandonment is one possibility when you have no loan on the car. A trustee can abandon a nonexempt asset if the trustee believes that the time and expense of seizing and selling an asset would outweigh the benefit of doing so. For example, assume that your car is worth $5,500, and there is no car loan on it. Assume further that the exemption amount for the car is $5,000, meaning that if the trustee sold the car, the trustee would have to deliver $5,000 back to you, with only $500 remaining to pay creditors. In this example, the trustee might decide that it is not worth the time and expense of selling the car to generate such a small amount of money. If this were the case, the trustee would likely abandon the car, meaning, the trustee would allow you to keep the vehicle.

Ready to start your LLC? Start an LLC Online Now
What Happens When You Reaffirm a Vehicle After Bankruptcy?


Related articles

How to File for Bankruptcy for a Voluntary Repossession

Other than a house, your vehicle may be the most valuable asset you own, but repossession may seem like your only option when you can’t make your car payments. With repossession, your bank can take your car, sell it and apply the proceeds toward your loan balance. However, bankruptcy may allow you to restructure your loan so you don’t face repossession, and bankruptcy can erase your remaining debt if your vehicle has already been repossessed.

How Does Bankruptcy Affect Homebuying?

Bankruptcy can give you a fresh financial start by allowing you to restructure or erase your debts under a court-supervised process. However, your bankruptcy case doesn’t go away once your court process is complete. Bankruptcy stays on your credit report and can hurt your ability to obtain credit in the future, including home loans.

Can Cars Be Kept If Filing for Chapter 7 Bankruptcy?

Bankruptcy -- particularly Chapter 7 -- can be a complicated series of legal options. You might decide you want to keep some property, while you're more willing to let other things go. If you want to keep certain assets, such as your car, you can't discharge the debts associated with them. You must either address the loan against the vehicle, or -- if you own it free and clear -- you must protect your equity in it. You've got some choices regarding how to do this.

LLCs, Corporations, Patents, Attorney Help

Related articles

Can I Convert to a Chapter 7 Without Losing My House or Car?

When you file for Chapter 13 bankruptcy protection, the court requires you to make payments on a three to five-year ...

Do I Have to Give Up Things That I Own Outright When I File Bankruptcy?

Bankruptcy can be an intimidating process because of the uncertainty and complexity involved in turning over your debts ...

Ways to Prevent the Loss of Your Home in Chapter 7 Bankruptcy

U.S. bankruptcy law serves two purposes. The first is to give people an opportunity for a new start by wiping away some ...

What Happens if the Trustee Abandoned an Asset?

The word "abandon" sounds alarming, but it can actually be a good thing in a Chapter 7 bankruptcy. When your trustee ...

Browse by category
Ready to Begin? GET STARTED