Debtors often wonder what will happen to their car when they file bankruptcy. In most cases, you get to keep your vehicle during and after your case is closed. Even if you are behind on payments when you file you may be able to retain possession of your vehicle through exemptions offered. The outcome of your case may depend on which chapter you file – Chapter 7 or Chapter 13.

In either case, you should understand measures that can protect your car. When you file for protection the automatic stay goes into effect. This protects personal property such as vehicles from being repossessed by creditors. If you file Chapter 7, but want to keep your car, there are exemptions that may protect it from being sold if the vehicle is paid off or repossessed if you are still making payments.

In Chapter 7, you may have the option of reaffirming the loan agreement on the vehicle (settling on a payment arrangement you promise to stick with to prevent repossession), redeem the vehicle by making a lump sum payment based on what the car is worth and having the remaining balanced owed discharged, or surrender the car if you can’t afford payment.

Chapter 13 can help you get a better rate on your loan balance if you are still making payments on your car. Meaning, depending on the value of the car and what you owe on it, you may be able to reduce the principal balance with a lower rate (cram down) giving you an affordable payment. You may also use this chapter to get caught up on defaulted payments.