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Keeping your car during chapter 7 bankruptcy

The chapter 7 bankruptcy process is also known as liquidation bankruptcy. This means that you might sell — or liquidate — some of your property to settle your debts.

Naturally, you might want to keep some of this property. One example is a car that helps you get around your neighborhood or get to work.

Exempt property

The court sees some types of property as exempt from liquidation during bankruptcy. Your car might qualify in a limited capacity for this.

Cars, of course, are not the only type of exempt property. Other types might include tools you need to do your job, clothing or personal injury settlements. After all, the purpose of bankruptcy is to help you recover from unmanageable debt — not impose any further undue hardship.

Reaffirmation of debts

Chapter 7 bankruptcy has the potential to wipe out a large portion of your debt. Because of this, some of the people or organizations to whom you owe money might act to protect their own best interests.

In terms of cars, this might take the form of auto repossession. One way you could potentially compromise on this point is to reaffirm your debt. Debt reaffirmation involves agreeing to continue paying on your car, but the process might be more complex than your initial loan.

Undue hardships

In some cases, the court might decide that continuing to pay for your car would represent an undue hardship. If the hardship is only on paper, your attorney might be able to certify your ability to continue paying without any significant problems to you or your dependents.

To reiterate, the goal of bankruptcy is to get you back to a level of financial stability. For many people, a car is an essential part of that goal.


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