For many Americans, a car is more than just a way to get from point A to point B. It’s essential for getting to work, running errands, taking kids to school, and managing everyday responsibilities. But when financial hardship strikes and bankruptcy becomes the only option, one of the first questions people ask is: “What will happen to my car in bankruptcy?”

The answer depends on several factors — whether you own your vehicle outright or still owe money on it, the type of bankruptcy you file (Chapter 7 vs. Chapter 13), and the protections available under federal and state laws.

This guide explains how bankruptcy impacts car ownership, car loans, and your options for keeping or surrendering your vehicle. If you’re facing financial struggles and are worried about losing your car, consulting with an experienced bankruptcy attorney such as Figeroux & Associates, located at 26 Court Street, Suite 701, Brooklyn, NY 11242, can help you navigate the process. You can learn more at www.askthelawyer.us or call 855-768-8845 for guidance.

Cars in Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” is designed to eliminate unsecured debts such as credit card balances and medical bills. But what happens to your car depends on two things: equity and exemptions.

1. If You Own Your Car Outright

• Equity matters. Equity is the car’s value minus any loans attached to it.
• Bankruptcy law allows exemptions — property you can keep despite filing. In New York, for example, debtors can exempt a certain amount of vehicle equity (this figure changes periodically). If your equity falls below the exemption limit, you keep your car.
• If the equity is higher than the exemption, the bankruptcy trustee could sell your car, use the proceeds to pay creditors, and return the exempted portion to you.

2. If You’re Still Making Payments

• Reaffirmation agreement: You agree to keep making payments under the same terms. If you default later, you’re still liable.
• Redemption: You pay the current market value of the car in one lump sum, even if the loan balance is higher. This can save money if your loan is upside down.
• Surrender: You can choose to give the car back and discharge the remaining debt.

Chapter 7 can be risky for car owners with high-value vehicles, but with exemptions and smart legal advice, many people manage to keep their cars.

Cars in Chapter 13 Bankruptcy

Chapter 13 bankruptcy works differently. Instead of liquidation, it sets up a repayment plan lasting three to five years. This type of bankruptcy can be much more forgiving if you want to keep your car.

1. Catching Up on Missed Payments
   If you’ve fallen behind on your car loan, Chapter 13 allows you to spread out arrears through your repayment plan. As long as you make regular plan payments, your lender cannot repossess the vehicle.
2. The “Cramdown” Option
   If you purchased your car more than 910 days (about 2.5 years) before filing, you may qualify for a cramdown. This allows you to reduce your loan balance to the car’s current market value and possibly lower the interest rate. For people with upside-down loans, this is a huge benefit.
3. Protecting Multiple Vehicles
   Families often have more than one car. Chapter 13 allows for more flexibility in keeping multiple vehicles as long as the repayment plan remains feasible.

Chapter 13 is often the better choice for individuals who are behind on car loans but want to keep their vehicles.

Repossession and Bankruptcy

One of the most immediate fears people face when behind on car payments is repossession. Here’s how bankruptcy interacts with that process:

• Automatic Stay: When you file for bankruptcy, an automatic stay goes into effect, halting creditor collection efforts, including repossession.
• If Your Car Was Already Repossessed: Timing is crucial. If the car hasn’t been sold yet, bankruptcy may allow you to recover it, depending on state law and the type of bankruptcy filed.

An attorney can help you act quickly to protect your rights if repossession is imminent.

Bankruptcy Exemptions and Cars

Exemptions are critical in determining whether you keep your car. These protections vary by state. In New York, for instance, individuals can exempt a portion of equity in a motor vehicle. Married couples filing jointly may double exemptions if they co-own the vehicle.

If your car’s value exceeds exemptions, bankruptcy attorneys can advise on strategies such as filing under Chapter 13 instead of Chapter 7, or using wildcard exemptions (where available).

Strategic Considerations

1. Should You Keep or Surrender Your Car?

• If your car is essential for work and affordable under your budget, keeping it makes sense.
• If it’s a financial burden — for example, an expensive loan with high payments — surrendering it during bankruptcy may help you reset financially.

2. The Importance of Accurate Valuation
   Courts and creditors will look closely at your car’s value. Overestimating could risk losing the car in Chapter 7, while underestimating could raise challenges. Professional appraisals may be necessary.
3. Working With a Lawyer
   Bankruptcy laws are complex. The right attorney ensures you take full advantage of exemptions, avoid pitfalls, and make informed choices about your car loan obligations.

Why Work With Figeroux & Associates?

Bankruptcy is not just about paperwork — it’s about protecting what matters most while rebuilding your financial life. That includes your car.

Figeroux & Associates, located at 26 Court Street, Suite 701, Brooklyn, NY 11242, has decades of experience guiding New Yorkers through bankruptcy cases. They understand how vital vehicles are for families and workers, and they craft strategies to help clients keep their cars whenever possible.

Their attorneys are deeply familiar with both Chapter 7 and Chapter 13 bankruptcy and can explain the advantages and risks of each. They help clients understand exemptions, negotiate reaffirmation agreements, and explore options like cramdowns. With resources available at www.askthelawyer.us and access by phone at 855-768-8845, the firm provides both the legal knowledge and the personalized attention clients need during difficult financial times.

By focusing on individualized solutions, Figeroux & Associates ensures that clients don’t just file for bankruptcy — they emerge with a stronger financial foundation and the ability to move forward with confidence.

Conclusion

Cars are more than possessions; they are lifelines for modern life. In bankruptcy, whether you keep your car depends on ownership status, loan terms, exemptions, and the type of bankruptcy you file. Chapter 7 and Chapter 13 both provide opportunities and challenges, from reaffirming loans to restructuring payments through a repayment plan.

With experienced legal guidance, you can make decisions that protect your vehicle, reduce financial stress, and set you on a path toward recovery. For Brooklyn residents and beyond, Figeroux & Associates has earned a reputation as a trusted advocate in these matters, combining deep expertise with a commitment to client care.

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