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Can I keep my car if I file for Chapter 7 bankruptcy?

One of the common misconceptions about filing for bankruptcy is that you will lose all your possessions. This can be a scary thought. One asset that most people in Tennessee rely upon daily is their car. Without their car they may be unable to get their kids to school, get themselves to work, get groceries, or make it to doctor's appointments. For some people, the loss of their car could cost them their job and put their life at a standstill.

Fortunately, filing for Chapter 7 bankruptcy does not mean you'll become impoverished. There are ways to keep your car, even if you file for personal bankruptcy. If you own your car outright, it may be possible to claim it as an exemption. Those who claim their vehicle as an exemption need to ensure that the entire value of the vehicle is covered by the exemption, or the bankruptcy trustee may still retain the ability to sell the vehicle.

If you still owe money on your car, there are still options that may allow you to keep it following the bankruptcy process. One way is to enter into a reaffirmation agreement with your lender. Through this process, the car loan is taken out of the bankruptcy process. As a result, a debtor may retain their vehicle but will have to keep making payments on it, and it could still be subjected to repossession if they default on the loan. In general, for the court to approve the reaffirmation, either the balance or the interest rate on the loan must be lowered and the debtor needs to demonstrate that they have the income available to keep up with their car payments under the reaffirmation agreement.

Another option that may be available in some circumstances is for a Chapter 7 debtor to purchase their vehicle from the lender by filing a motion to redeem. The amount paid will be equal to the retail value of the vehicle at the time the debtor filed for bankruptcy. This can only be done in a one-time lump sum payment. In addition, the vehicle must be used for personal, family, or household purposes. If the court permits the redemption, the lender will be ordered to accept payment for the vehicle from the debtor, and the debtor will be granted title to the vehicle.

Any of these options can be complicated, though, and mistakes made could slow down the process or even lead to a denial altogether. Therefore, many people in such situations choose to work with bankruptcy attorneys who understand what options are available and can help their clients make informed decisions.

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Kenneth C. Rannick, P.C.
4416 Brainerd Road
Chattanooga, TN 37411

Phone: 423-624-4002
Toll Free: 800-257-7594
Fax: 423-624-0509
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