Christopher Todd
Morrison, P.C.

Christopher Todd Morrison, P.C.

Affordable Bankruptcy
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How may I keep my car during a Chapter 7 bankruptcy?

Texas and federal bankruptcy codes provide options that may allow you to keep your car. Because most individuals need a vehicle to drive to and from work, you may claim an exemption for your car when filing a Chapter 7 bankruptcy petition. 

Under The Lone Star State’s personal property exemption, Sec. 42.002(a)(9), you may hang on to one vehicle per licensed driver in your household. This means that if both you and your spouse file a bankruptcy petition together, you may each keep one car. 

What do I need to do if I have not finished making all my car payments?

When you decide to file for bankruptcy, you may need to contact the lender of your auto loan. If you have made your car payments regularly and on time, you may have the option to keep your auto loan. 

As noted by Bankrate, you may keep your car and continue making payments after reaffirming your vehicle loan agreement. In exchange for upholding your agreement, the lender may decide against repossessing your car during your bankruptcy. Your loan terms typically remain the same until you finish making all your car payments. 

What happens if I cannot afford to continue making payments?

Without sufficient income to continue making payments, bankruptcy allows you to surrender your car to your lender. Generally, a representative from the finance company picks up your vehicle and sells it at an auction. Borrowers may avoid penalties for defaulting on payments and forgo a painful repossession process by surrendering their vehicles. 

Some auto lenders offer borrowers an opportunity for redemption. If you have some savings or could afford to pay a lump sum, a lender may accept a car’s actual cash value. The bankruptcy could then discharge your auto loan’s remaining balance and allow you to keep your vehicle.