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Will I lose my vehicle if I declare bankruptcy?

On Behalf of | Aug 4, 2021 | Bankruptcy

There are certain assets you need to take care of yourself and your family. You need to retain a place to live, for example, and enough furniture and clothing for your comfort and safety. You also need a vehicle so that you can get to work or take your children to school.

One of the most commonly cited reasons people give for delaying a bankruptcy filing is the concern that they will lose those crucial assets. If you file for bankruptcy, does that mean that you will lose your vehicle?

If you financed your vehicle

Many Americans don’t outright own their vehicles. They buy them from dealerships and then make payments for years. If you financed the purchase of your vehicle, you only own as much of its worth as the equity you have accrued through payments. The lower the amount of equity, the less likely it will be at risk in a Chapter 7 bankruptcy.

The vehicle could be vulnerable to repossession if you fall behind on payments. However, filing for bankruptcy grants an automatic stay that could prevent the repossession of your vehicle. If you want to keep the vehicle, you will typically have the opportunity to reaffirm your vehicle loan as part of the bankruptcy and continue paying on the vehicle. If you file a chapter 13 bankruptcy, in particular, you might be in a good position to negotiate more favorable terms for your financing.

If you own the vehicle or have substantial equity

Maybe you have always set money aside so that when it is time to purchase your next vehicle, you buy in cash. Perhaps you have paid on your vehicle for long enough to pay off the loan on it.

When you have thousands of dollars in vehicle equity or outright ownership of the vehicle, you could have an obligation to sell the vehicle or refinance it to cash out equity in a Chapter 7 bankruptcy. Chapter 13 bankruptcy will not require the liquidation of assets and therefore won’t usually affect a vehicle that you already own.

Filing for bankruptcy won’t necessarily cost you your vehicle. In fact, it might make ownership of your vehicle a little bit more affordable. Finally, filing for bankruptcy could protect you from repossession efforts that might mean that those years of payments essentially amount to nothing. Knowing what happens with a vehicle during personal bankruptcy can help you decide if filing is the right thing for your financial situation.