How to declare bankruptcy and keep your car?

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Declaring bankruptcy can be a difficult decision to make, but it is sometimes necessary to regain control of your financial situation. One common concern for individuals considering bankruptcy is whether they can keep their car. In this article, we will explore the process of declaring bankruptcy and provide guidance on how to keep your car throughout the process.

Understanding Bankruptcy

What is bankruptcy? Bankruptcy is a legal process that allows individuals or businesses to eliminate or repay their debts under the protection of the court. It provides a fresh start for those overwhelmed by debt and unable to meet their financial obligations.

Types of bankruptcy: There are different types of bankruptcy, but the most common for individuals are Chapter 7 and Chapter 13 bankruptcy. Chapter 7 bankruptcy involves liquidating assets to pay off debts, while Chapter 13 bankruptcy involves creating a repayment plan to pay off debts over a specified period.

Exemptions and Your Car

Understanding exemptions: Bankruptcy exemptions are laws that allow you to protect certain assets from being seized by creditors during bankruptcy. These exemptions vary by state, and some states have specific exemptions for motor vehicles.

Motor vehicle exemptions: Many states have motor vehicle exemptions that allow you to keep your car up to a certain value. For example, if your state has a motor vehicle exemption of $5,000 and your car is worth $4,000, you can keep your car during bankruptcy. However, if your car is worth more than the exemption amount, you may need to explore other options.

Reaffirmation Agreement

What is a reaffirmation agreement? A reaffirmation agreement is a legally binding contract between you and a creditor that allows you to keep a secured debt, such as a car loan, while still discharging other debts through bankruptcy. By signing a reaffirmation agreement, you agree to continue making payments on the debt.

Considerations: Before signing a reaffirmation agreement, it is essential to carefully consider your financial situation. Evaluate whether you can afford to continue making payments on the car loan and if it is in your best interest to keep the car. If you are unsure, it may be wise to consult with a bankruptcy attorney for guidance.


What is redemption? Redemption is another option to keep your car during bankruptcy. It allows you to pay the fair market value of the car to the creditor in a lump sum payment, effectively buying the car back from the creditor.

Advantages of redemption: Redemption can be beneficial if your car is worth significantly less than the loan balance. By paying the fair market value, you can save money on the loan and keep the car.

Considerations: Redemption requires a lump sum payment, which can be challenging for many individuals going through bankruptcy. It is crucial to evaluate your financial situation and determine if redemption is a viable option for you.


Declaring bankruptcy does not necessarily mean losing your car. By understanding the exemptions available in your state, exploring reaffirmation agreements, or considering redemption, you can keep your car while going through the bankruptcy process. However, it is crucial to carefully evaluate your financial situation and seek professional advice if needed.


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