KEEP YOUR PROPERTY.
Cars and Bankruptcy in Kent
In a Chapter 7 bankruptcy, you can keep your car if it is paid in full and its value is under the exemption amount. Exemptions are the dollar value of property you can keep by law. In Washington, we can choose either federal or state exemptions. Both state and federal exemptions for a car are around $3500. In addition, you can stack a wildcard exemption on top of the car exemption - $3000 for state, as much as $11,975 for federal.
Keeping a car in Chapter 7 is a bit more complicated if you are still making payments. You can choose to surrender the car or keep making the payments. By surrendering the car, you simply give the car back to the finance company and wipe out the loan in full.
If you want to keep making payments, you may have to sign a reaffirmation agreement which puts you on the hook for the debt regardless of the bankruptcy discharge. If you sign the reaffirmation, you run the risk of default, losing the car and having a deficiency balance debt after bankruptcy. A creditor can repossess the car if you do not sign the reaffirmation agreement, even if you are current. Because it is in your interest to not sign the reaffirmation if the creditor will not repossess the car, you should ask the creditor what their policy is towards repossessing cars when the debt is not reaffirmed.
Another option in Chapter 7 is a redemption. A redemption allows you to pay off the loan up to the value of the car and discharge whatever remains. Of course, this only makes sense if the value of the car is significantly less than the balance on the loan. Some finance companies specialize in offering loans to redeem the car.
If you are leasing the car, you can choose to either assume the lease and keep making the payments or reject the lease and give the car back. Of course, any drop off fees or other costs will be discharged in your bankruptcy if you reject the lease.
In a Chapter 13, you can consolidate the car loan with the rest of your debt and pay it off in as much as five years. You can pay only the value of the car if the car was purchased more than two and a half years ago or it was refinanced. You can always pay a lower interest rate in Chapter 13 if your interest rate is more than around 5%. Once you complete your Chapter 13 plan, you will get the title to your car regardless of how much you paid. As you make payments in your Chapter 13, the car finance company can not come after your car as long as you do not fall behind on your payments and you keep the car fully insured.