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Keeping your car if you file for bankruptcy

On Behalf of | Mar 26, 2023 | Chapter 7 Bankruptcy |

Tennessee consumers who are struggling with unmanageable financial situations often delay filing for bankruptcy or do not seek debt relief at all because they are worried about their property being sold to pay their creditors, and the assets they usually fear losing the most are their cars. Most people do not live in areas well served by public transportation, which means not having a personal vehicle could make it very difficult for them to work and earn a living. If you file a Chapter 7 or Chapter 13 bankruptcy, you may be able to keep your car even if you have an outstanding auto loan.

Cars with outstanding loans

If you file a Chapter 7 bankruptcy petition and have a car that you are still making payments on, you could ask your lender to reaffirm the loan. When a loan is reaffirmed, the borrower tells the bank that they will continue to make payments even though they filed for bankruptcy. You could also pay the loan in full, but few people who file Chapter 7 bankruptcies are able to do this. If you file a Chapter 13 bankruptcy petition, your auto loan will be probably be revised by the bankruptcy trustee. The bank you make your payment to will have to accept the revised terms, and you should be able to keep your car.

Cars that have been paid off

If you paid cash for your car or have already made all of your auto loan payments, you may still be able to keep your car after filing for bankruptcy by using a bankruptcy exemption. Tennessee does not have a motor vehicle exemption, but it does have a $10,000 wildcard exemption that you could use to protect your car.

Your lender will probably work with you

If you file for bankruptcy and ask for an auto loan reaffirmation, the bank you make your payments to will probably have good reason to agree. Cars depreciate quickly, which means you probably owe more on your loan than your car is worth. If your bank refuses to reaffirm your loan, it will have to pay a company to repossess your car and transport it to an auction. It will then have to accept the highest bid, which will likely be a lot less than you are offering.