Will I Lose My Car If I File for Bankruptcy?

Filing for bankruptcy raises many concerns, with car ownership being one of the most pressing questions people face. The good news is that keeping your vehicle through bankruptcy can be possible with the right approach and legal guidance.

At Whitten & Whitten, we’ve helped countless people keep their cars during bankruptcy since our start in 1997. Let’s explore how cars are treated in bankruptcy and what you can do to protect your vehicle.

Chapter 7 Bankruptcy and Your Car

Chapter 7 bankruptcy, known as liquidation bankruptcy, involves selling your non-exempt assets to pay back creditors. However, this doesn’t automatically mean you’ll lose your car.

Indiana’s Wildcard Exemption for Vehicles

Indiana doesn’t have a specific motor vehicle exemption, but the state offers a wildcard exemption that can protect up to $12,100 of equity in any nonresidential tangible property, including your car. If your vehicle’s equity falls within this amount, you can keep it.

For example, if your car is worth $15,000 and you owe $8,000 on the loan, your equity is $7,000. Since this falls under the $12,100 wildcard exemption, your car would be protected.

Redemption: Paying the Loan Difference

If your car has more equity than the exemption allows, you might use redemption. This option lets you pay the trustee the difference between your vehicle’s current value and what you can exempt, allowing you to keep your car.

Reaffirmation Agreements: New Payment Plans

Another option is entering a reaffirmation agreement with your lender. This creates a new contract with strict payment terms, essentially removing your car loan from the bankruptcy discharge. You’ll continue making payments as agreed, but you keep your vehicle and remain personally liable for the debt.

Chapter 13 Bankruptcy and Your Car

Chapter 13 bankruptcy works differently. Instead of liquidating assets, you agree to a repayment plan for your debts over three to five years. This approach often provides more flexibility for keeping your car.

Vehicle Value Reassessment

Under Chapter 13 rules, the bankruptcy court may lower your current car payment by reassessing your vehicle’s current market value. If you owe more than the car is worth, the court might reduce your loan balance to match the vehicle’s actual value, potentially lowering your monthly payments.

Catching Up on Past-Due Payments

Chapter 13 also allows you to catch up on missed car payments through your repayment plan. Instead of facing immediate repossession, you can spread past-due amounts over the life of your plan while keeping current on ongoing payments.

Protect Your Transportation

Keeping your car in bankruptcy is possible. The key is working with experienced bankruptcy attorneys who understand Indiana’s exemption laws and can develop the right strategy for your situation.

At Whitten & Whitten, we understand that your car represents independence, stability, and hope for the future. Our experienced team has helped countless clients protect their vehicles while finding lasting debt relief; we can help you, too. Contact us today to understand your options, protect your rights, and develop a strategy tailored to your unique situation.