One of the most common concerns clients have when filing for bankruptcy is whether they can keep their car. The good news? In most cases—yes, you can.
Chapter 7 Bankruptcy and Your Car Loan
If you’re filing Chapter 7 bankruptcy, your car loan is affected—but that doesn’t mean you’ll automatically lose your vehicle. Here’s how it works:
When you finance a car, you actually sign two key documents:
- The Promissory Note – This is your personal promise to repay the loan.
- The Vehicle Title with a Lien – This gives the lender a legal right to repossess the car if you don’t pay.
When you file Chapter 7 and receive a discharge, your personal obligation to repay the loan (the promissory note) is wiped out. But the lien stays. That means if you stop paying, the lender can repossess the car—but they cannot sue you for the remaining balance.
This is particularly helpful if you’re upside down on your car (owe more than it’s worth), or if you’ve rolled over debt from a previous vehicle into the current loan. Bankruptcy gives you the option to walk away without owing a dime beyond the car itself.
Chapter 13 Bankruptcy and Car Loan Restructuring
If you’re filing Chapter 13 bankruptcy, you may have even more options. Chapter 13 allows you to:
- Lower your interest rate
- Reduce the principal owed in some cases
- Restructure payments over 3–5 years
Many clients use Chapter 13 to make their car payments more affordable, freeing up monthly income while keeping the vehicle they rely on. And if the car isn’t worth keeping, Chapter 13 also allows you to surrender it and pursue a more practical replacement.
Can I Keep My Car in Bankruptcy?
In most cases, yes. Whether you’re filing Chapter 7 or Chapter 13, you have options to either keep your car or surrender it if it no longer makes financial sense. The key is to understand your rights and pick the strategy that works best for your situation.
If you have any questions about the topic discussed in this article, or any bankruptcy law matter, please give us a call at Bononi & Company 724-832-2499.