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Can I keep my car even though I filed for Chapter 7 bankruptcy?

In many instances a car is much more than a luxury -- it is a necessity. Little to no access to public transportation may mean that, without a vehicle, an individual has no way to get to work or to go grocery shopping for his or her family. For this reason, it is understandable that people in Washington pursuing Chapter 7 bankruptcy for personal debt often need to retain ownership of their vehicles. 

In a successful Chapter 7 bankruptcy, the majority of your debt is discharged. For some, having a car loan discharged can result in losing a vehicle. However, it is possible to approach your car's lienholder with a suggestion for a reaffirmation agreement. A reaffirmation agreement states that a person will still be liable for a debt no matter what is discharged through bankruptcy. Although this might not be ideal for everyone, with other debts cleared away, a single car note may become quite manageable. 

A second option is to simply purchase the car in full. It is sometimes possible to have the lender agree to accept the vehicle's retail value rather than the amount that is owed. In many instances, the retail value is less than what is left on a loan. However, the court must first approve a motion to redeem, and making monthly payments is not an option. When paying off a car loan as part of a bankruptcy, a debtor must pay the entire amount due in one payment.

Personal debt is different for everyone in Washington, as are the personal and financial needs that often accompany it. When it is crucial that a person retains ownership of his or her vehicle after filing for Chapter 7 bankruptcy, the consequences and benefits of both reaffirmation agreements and motions to redeem should be carefully weighed. If possible, it may be advantageous to address those issues early in the filing process.

Source:, "Keeping Your Car in Bankruptcy", David Haynes, Accessed on Jan. 30, 2015

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