One of the most common fears expressed to me by potential bankruptcy clients is, "but I don't want to lose my car!" The good news... as long as you can afford to make the payment and keep it current, you can always keep your car in bankruptcy.
In Chapter 7 bankruptcy, you can keep your car as long as you are current at the time of filing. You are not required to return your car or lose your right to continue to make payments. Bankruptcy law allows you to retain the vehicle and continue to make payments. In most Chapter 7 bankruptcies it is simply a matter of continuing to make current car payments as normal. Nothing changes (though, you must be aware sometimes finance companies will stop sending you payment books while you are in bankruptcy so as to not violate the Automatic Stay).
If you are one or two payments behind, it is often advisable to catch-up with the payments before filing the Chapter 7 bankruptcy. This is not always easy to do, but it is worth waiting to file if you protect your car.
Bankruptcy exemption laws allow you to protect the equity you have in your car. Equity is just the value of the car minus what you owe. So, a car is like the rest of your property that can be protected from creditors. You creditors cannot take away your vehicle to satisfy their debt.
What if you are further behind on a car payment, perhaps three or four months? You can always file a Chapter 13 bankruptcy, which allows you to catch up arrears spread out over 36-to-60 months. Chapter 13 bankruptcy can even be used to get back a car that has been repossessed! (As long as the vehicle has not been sold at auction yet). I have used this option numerous times to save cars for my clients, sometimes for cars where payments that haven't been made for almost a year. The arrears owed on the vehicle are paid at 0% interest, so repaying what you owe in this way is a very realistic option.
Whether you should catch-up a few payments and file a Chapter 7, or file a Chapter 13 and catch-up through a bankruptcy reorganization, will depend on the circumstances. If other circumstances point to Chapter 7 bankruptcy or Chapter 13 bankruptcy, those circumstances will often dictate. If you are only a single payment behind and otherwise qualify for Chapter 7, it is usually advisable to catch-up before filing, as Chapter 7 has significantly less legal fees. Regardless, as long as you can afford it, you can keep it.
Contact us if you are having issues with you car payment and want to seek advice on making the payment.