Yes, it is often possible to keep your car during a bankruptcy proceeding, but it depends heavily on the type of bankruptcy you file and the specific exemption laws in your state. The two most common types for individuals are Chapter 7 (liquidation) and Chapter 13 (reorganization). In Chapter 7, you might have to surrender the car if there's significant equity that isn't protected by an exemption. In Chapter 13, you typically keep the asset while repaying creditors through a court-approved plan, which often includes catching up on missed car payments.
The key factor is your state's automobile exemption. This is a specific dollar amount of equity in a vehicle that the law protects from being taken by creditors to pay off your debts. Equity is your car's current market value minus the amount you still owe on the loan. If your equity is less than or equal to the exemption amount, you can usually keep the car in a Chapter 7 bankruptcy.
| State Bankruptcy Exemption Examples (Vehicle Equity) | Homestead Exemption (for context) |
|---|
| California (System 1): $7,500 | $600,000 |
| Texas: Unlimited for 2 vehicles per licensed household member | Unlimited |
| Florida: $1,000 | Unlimited |
| New York: $11,375 ($12,825 if under 65) | $179,950 (NYC, Nassau, Suffolk counties) |
| Illinois: $2,400 | $15,000 |
If you have a car loan, the situation is different. The lender has a security interest in the vehicle. To keep it, you must continue making payments. In Chapter 7, you can sign a Reaffirmation Agreement, which legally reaffirms the debt, making you personally liable again. Alternatively, you can often just continue paying without a reaffirmation agreement (called "ride-through" or "pay and drive"), but this isn't available in all states. In Chapter 13, your car loan is rolled into the repayment plan, allowing you to potentially lower the interest rate or even reduce the principal balance if the car is worth less than the loan amount (a "cramdown").
Consulting with a qualified bankruptcy attorney in your state is crucial. They can analyze your specific financial situation, explain your local exemption laws, and guide you on the best path to protect your vehicle while achieving debt relief.
