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Will you lose your vehicle if you file bankruptcy?

If, despite your best efforts, you have long struggled to manage your debts, you may feel ready to file bankruptcy. Yet, even if filing makes financial sense, you may hesitate to proceed if you fear the prospect of surrendering your assets. Among the assets you are likely worried about losing is your vehicle. Whether you file Chapter 7 bankruptcy or Chapter 13 bankruptcy, though, you may have ways to protect it.

Protecting your vehicle in Chapter 7 bankruptcy

Your ability to protect your vehicle after filing Chapter 7 bankruptcy depends on two things. The first is whether you are current on your auto loan payments, and the second is the amount of equity you have in your vehicle. If you are current on your auto loan payments, you may be able to protect your vehicle if the equity you have in it is not significant. Equity, in this case, is the difference between your auto loan’s balance and your vehicle’s market value. Often, vehicle equity is protected by a motor vehicle exemption, yet Indiana’s bankruptcy code does not include one. But you can protect up to $10,250 of equity in your vehicle by using the state’s wildcard exemption toward it.

If you are behind on your auto loan payments, you will likely have difficulty keeping your vehicle in Chapter 7 bankruptcy, no matter how much equity you have in it. Yet, you may be able to protect your vehicle if you can negotiate with your lender to reaffirm your auto loan or redeem its value.

Protecting your vehicle in Chapter 13 bankruptcy

You may have an easier time protecting your vehicle in Chapter 13 bankruptcy than in Chapter 7 bankruptcy. This is because you will manage your debts through a repayment plan, rather than having your bankruptcy trustee sell them to pay off your creditors. If you are behind on your auto loan, you may be able to catch up on it as part of your repayment plan. So long as you satisfy your arrearage – if you have one – and remain current on your monthly payments, you will likely be able to keep your vehicle.

One unique feature of Chapter 13 bankruptcy is the cramdown. Cramdowns allow you to reduce the balance you owe on your debts to their current market value. For your auto loan to qualify for a cramdown, you must have owned your vehicle for at least 910 days – around two-and-a-half years – when you file bankruptcy.

Whether you are current or behind on your auto loan payments, you have ways to protect your vehicle after filing bankruptcy. To determine whether keeping it is feasible in your situation, you will want to consult a bankruptcy attorney.