22 May Can I Keep My Car in Bankruptcy?
People are often worried about whether they can keep their car in bankruptcy. This makes sense because in places without pervasive public transportation people need cars to get to work, take their kids to school, etc. There are a few key points about cars to remember.
1. In a Chapter 13 case you never lose property to the case trustee. This is because Chapter 13 is a reorganization chapter, not a liquidation chapter like Chapter 7.
2. In Chapter 7, you must exempt your car equity in order to not have to turn it over to the case trustee. This is usually possible. However, when it is not, one can always choose Chapter 13 to protect the non-exempt equity in the car. Note: people with car loans often do not have any equity in their cars.
3. The previous two points pertain to keeping a car from the case trustee. What about keeping your car from your car lender? You know that, outside of bankruptcy, if you keep your car payments up-to-date, the car insured, and don’t wreck the car, your car lender has no right to repossess it. Fortunately, the same holds true in bankruptcy–at least here in Massachusetts. In some states, a car lender can take back a car in the absence of a valid bankruptcy reaffirmation agreement. Here in Massachusetts, they cannot because of a state law that only allows repossession when someone misses payments or impairs the value of the collateral–filing bankruptcy is not enough. So this is the good news: if you honor your car financing agreement, your lender must too…even in bankruptcy,
Nicholas Ortiz, Boston Bankruptcy Attorney
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