Will I get to keep my car if I file for bankruptcy protection?
In most cases the answer is yes. The exact mechanism for how keeping and/or paying back the debt associated with the vehicle works will depend on the type of bankruptcy petition you file.
Keeping your car in a Chapter 7 case:
In a Chapter 7 case, you can either (1) redeem, (2) reaffirm, or (3) surrender a vehicle you are financing. If you own the car free and clear, you will likely be able to keep the car and the bankruptcy usually will have no impact on your vehicle at all.
Redeeming the car means that you pay a one-time lump sum to the lender of either the current fair market value of what the car is worth or what you still owe on the car and then you will own it free and clear. Although this is not always an affordable option for everyone, it is possible to get redemption financing to keep the car through this option.
If the car is worth far less than what you owe on the car, and you really want to keep the car, this may be an attractive option for you.
Reaffirming the debt on the car means that you are entering into a new contract with the lender of the vehicle that will survive the bankruptcy discharge. If you choose this option, the effect is as if you never filed for bankruptcy protection with respect to that particular lender. You will still owe the full amount of debt on that vehicle, but the lender cannot repossess the vehicle unless you fall behind on payments.
Surrendering the vehicle means that you voluntarily let the lender repossess the vehicle in exchange for a discharge of the debt associated with the vehicle. In many cases, a vehicle is worth far less than an individual owns on the car.
In those circumstances, some individuals would rather get rid of the car and not risk being sued by the lender if the car is later repossessed and sold at auction for less than the car is actually worth.
Keeping your car in a Chapter 11 or 13 case:
Both Chapter 13 and Chapter 11 bankruptcy allow you to cure missed payments on cars that are either leased or refinanced over a period of 3 to 5 years or longer.
You may also have the option of keeping the vehicle and paying back only what the car is actually worth even if the total debt owed on the vehicle is far more than the value of the vehicle.