Can I Keep My Car if I File Chapter 13?

How Chapter 13 Affects Your Car:

1. Continue Making Payments:
   • If your car is financed (i.e., you still owe money on it), you can keep the car as long as you continue making your regular car payments during the life of your repayment plan. These payments would be part of your monthly obligations under the Chapter 13 plan.
   • Secured debt like car loans is typically included in your Chapter 13 repayment plan, so you’ll continue to pay off the car loan according to the terms of the plan. You may even be able to modify the loan under certain conditions (e.g., reducing the interest rate or extending the loan term).
2. Treating the Car Loan in Chapter 13:
   • Car loans are secured debt, meaning the lender has a claim on your car if you default. However, under Chapter 13, you may be able to restructure the debt in a way that benefits you:
     • If your car’s value is less than the amount you owe, you might be able to reduce the principal balance to the current value of the car, a process known as “cramdown”. This only applies to vehicles purchased more than 910 days before filing (about 2.5 years).
     • You may be able to reduce the interest rate on your car loan as well, making the loan more affordable.
     • Late payments or arrears on the car loan may be included in the repayment plan, allowing you to catch up on missed payments over the course of the plan.
3. If You Are Behind on Payments:
   • If you’re behind on your car payments when you file for Chapter 13, you can catch up on the missed payments through the Chapter 13 plan. The arrears (missed payments) are often spread out over the length of the plan, allowing you to keep the car while you work to make the car loan current.
   • If you fail to make the payments as required under the Chapter 13 plan, the lender may seek permission from the court to repossess the car, but as long as you stay current with your repayment plan and car payments, the car can be retained.
4. Leasing a Car:
   • If you are leasing a car, the lease payments would be included in your Chapter 13 repayment plan as well. You can keep the car during the bankruptcy as long as you are current on the lease payments, and the lease terms are adhered to.
5. Car Equity Considerations:
   • The equity in your car (the value of the car minus what you owe on it) could be factored into your Chapter 13 plan. If your equity exceeds the exemption amount allowed in your state, the trustee may require you to repay some of that value to unsecured creditors. However, this is generally less of a concern if you have a car with little equity or if your car qualifies for a full exemption under state law.

Key Points to Keep in Mind:

• Chapter 13 gives you more flexibility to keep your car, even if you are behind on payments, as long as you meet the repayment plan requirements.
• The amount owed on your car and whether you are current on the loan or behind will affect how it is handled in the plan.
• You must keep up with payments on the car during the repayment plan in order to avoid repossession.
• Car loans can be modified (through a cramdown, interest rate reduction, or repayment of arrears) depending on the value and terms of the loan.

When You Might Lose Your Car:

• If you fall behind on the payments for your car loan or fail to comply with the terms of your Chapter 13 plan, the creditor may request permission to repossess the car.
• If your car is leased, you may face difficulties if you cannot continue to make the lease payments. The lessor may repossess the car if you default.

Conclusion:

In Chapter 13 bankruptcy, you can generally keep your car as long as you can maintain the payments required by the bankruptcy repayment plan. This allows you to catch up on overdue payments or modify your car loan to make it more manageable. However, it’s essential to stay on track with your payments, as failure to do so could lead to repossession. If you have questions specific to your situation, it’s helpful to consult with a bankruptcy attorney, who can provide guidance based on the details of your car loan, equity, and overall financial circumstances.