Chapter 7 Bankruptcy: Can I Keep My Car?

You need to file Chapter 7 Bankruptcy and you live in the Central Valley of California.  You may be wondering whether you can keep your car in a Chapter 7 bankruptcy.   Either your car is paid for, or you are still making payments.  If your car is paid for, you can exempt from your bankruptcy several thousand dollars of the value of your car.  If your car is worth more than several thousand dollars, you can apply wild card exemption wild card exemptions to exempt the remaining value.  
If you are making payments on your car, you only need to exempt the equity you own in your car.  If your car is worth $12,000, but $10,000 is financed, then you only need to exempt $2,000.  Your lender, however, will seek to have you reaffirm the financing agreement.  Reaffirmation is like renewing your agreement with the creditor or title holder of the vehicle.  You and the lender define an agreement that allows you to keep the vehicle after their bankruptcy case is completed.  You may agree to repay all or a portion of the outstanding balance remaining on the loan.  Most lenders in the Central Valley will require payment of the full outstanding balance.  They will sometimes lower the interest rate.  
Another option is to redeem the vehicle by making a lump-sum payment that often adds up to be the vehicle’s total value. Because you are filing bankruptcy, you will not likely be in a position to do this, making reaffirmation the most realistic solution.
A vehicle that has payments still owed on it is part of a secured loan agreement you originally made in the beginning. A lien against the vehicle makes it possible for the lender to repossess it when payments are not made.  In Chapter 7 the lien still survives if you discharge what is owed or payments you missed, but reaffirmation can help you keep your vehicle when your case is completed as long as you make payments according to the new agreement.
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