Sometimes, a car may mean much more than getting from one place to another. It might help you earn a living, take your children to school or attend medical appointments. When your daily routine depends on that vehicle, Chapter 7 bankruptcy could make the risk of losing it harder to ignore.
Several details usually affect what happens to your car after filing Chapter 7. The overall value of your car, your available equity and any remaining loan could all play a part in the bankruptcy process.
Does your equity affect whether you keep the car?
Equity is the part of the car’s value left after the loan. It is the difference between what the vehicle is worth and what you still owe. If your car is worth $13,000 and the loan balance is $8,000, you have $5,000 in equity.
That equity amount matters because the bankruptcy trustee reviews whether your vehicle’s value or equity fits within Tennessee’s $10,000 personal property exemption. If the equity is fully covered by this exemption, the trustee cannot liquidate the vehicle.
It may help to estimate your car’s current value and check the payoff amount. Together, those numbers show how much equity you have.
What if you are still making car payments?
After equity, the monthly payment may become the next issue. Even if your equity does not create a major problem, the loan terms could still affect your budget.
If you still owe on the vehicle, the lender usually keeps a secured interest in it. That means the loan agreement may affect your options after you file.
Reaffirming the loan means you keep paying and remain responsible for the debt after bankruptcy. Redemption may involve paying the vehicle’s current value in one payment. If the monthly payment no longer works, surrendering the vehicle might also become part of the discussion.
A car with little equity could still become difficult to keep if the payment leaves less room for housing, groceries and other everyday expenses.
A closer review may clarify your options
You may be able to keep your car after filing Chapter 7, but the answer usually depends on your full situation. Your equity, loan terms, monthly payment and transportation needs often work together. Looking at the complete picture could help explain why keeping a car may be possible in one Chapter 7 case, but more difficult in another.