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What Happens to My Car in Bankruptcy?

Understanding Your Vehicle Options in Chapter 7 Bankruptcy

Many clients filing for Chapter 7 bankruptcy ask our team what will happen to their car in bankruptcy. This is an important question that we’re here to answer.

Bankruptcy is often viewed as something you should avoid at all costs. While it may be beneficial to explore other means of debt relief before filing for bankruptcy, doing so can give you a fresh start by wiping away your debts. Your path to financial freedom may feel long and overwhelming, but with our bankruptcy lawyer on your side, we can help make the process as smooth as possible.

First, it’s important to remember that Chapter 7 bankruptcy, also known as liquidation bankruptcy, is a type of consumer bankruptcy that requires you to liquidate nonexempt assets to repay as much debt as you possibly can before being relieved of it. Chapter 7 discharges most of your debts, but not without sacrificing secured assets, which can include your car in many cases.

If you are still making payments on your car, you have three options: Surrender, re-affirmation and redemption.


If you file for Chapter 7 bankruptcy and still owe money on your car, regardless of whether you own or lease it, you can surrender it. This means that you give back your car to the lender or leasing company and are no longer required to make payments on it. You’re essentially released from owing any car payments if you surrender your vehicle.

Surrendering your vehicle can be a sound option if the interest rate is high, your loan payments are higher than your car’s value or you’re behind on payments.


To obtain permission from the court to enter a reaffirmation agreement, you must prove that your car is necessary for survival and loan payments won’t place significant hardship on your family.

If you sign a reaffirmation agreement, you can keep your car as long as you pay off your car loan. Your bankruptcy case will not discharge your car debt, but rather you will be responsible for such debt as if you didn’t file for bankruptcy in the first place. In other words, re-affirmation allows you to keep your car in exchange for paying your car debt. 

If you miss payments, however, you’re liable for the loan and the remaining deficiency balance after your car is repossessed and sold.


Redemption allows you to pay the lender however much your vehicle is currently worth to discharge your remaining loan debt. In many cases, people owe more than their vehicle is worth, making redemption seem like a perfect option. If your outstanding debt is lower than the current market value of your vehicle, you can choose to pay that instead. Many times, you can choose the option worth less money.

However, the downside of redemption is you must pay the lender in a lump sum payment. This means that regardless of whether you choose to pay the current value of your car or its outstanding debt, it must be in the form of a single payment. Many people filing for bankruptcy are unable to pay the cash upfront, making this option unattainable and risky.

Unsure of Which Option to Pick? We Can Help.

Our New York bankruptcy attorney can help you navigate your options and provide the legal counsel you need to decide whether to redeem, reaffirm or surrender your vehicle. We understand that your livelihood and survival may depend on your ability to access and drive your vehicle, so we will closely analyze your situation to devise the best plan that suits your unique goals.

Bankruptcy can seem like a complex situation, but it doesn’t have to be. When you retain our bankruptcy lawyer, you can feel confident that we can champion your best interests no matter what it takes. Contact us online or call (888) 301-0584 for a free consultation to get started.