It Is Possible to Keep Your Car in Chapter 7 Bankruptcy

It Is Possible to Keep Your Car in Chapter 7 Bankruptcy

Our most recent video covered the topic of keeping your car in Chapter 7 bankruptcy. This is one of the most common concerns among filers of Chapter 7 bankruptcy. No one wants to lose their car and many people can’t afford to do so.

Keeping Your Car in Chapter 7 Bankruptcy Video:

Overview of Redemption

Redemption is the best way to keep your car during a Chapter 7 bankruptcy and very underutilized. Simply put, redemption allows you to pay less than what you currently owe on your vehicle and get a smaller loan inside of your bankruptcy.

Getting a loan during bankruptcy?

That’s right! The idea that you can’t get a loan because of a bankruptcy is a MYTH. To get a loan, you can work with a bank that actually specializes in helping people do redemptions during a bankruptcy. If you’re approved for the loan then you can negotiate with creditors to waive the balance and walk out of the bankruptcy with your car AND a lower payment.

How Do You Get a Smaller Payment?

When you apply for a redemption you must first propose the amount you will pay to the creditor. This is based on the value of the car. The typical standard for redemption is that you will pay the “retail value” of the car (the amount a dealership or other merchant would sell the car for).

Vehicle valuation guides, such as Kelley Blue Book, are commonly used as legal evidence to the value of the car. The following things are taken into consideration when determining the value of your vehicle; manufacturer, model, year, condition, mileage, and more.

Although very uncommon, if you and the creditor have a disagreement on the value of your car then you must have a judge decide in court. You may choose to use an appraiser as evidence in court.

Redemption Example: You file for bankruptcy and owe $15000 on your car. The car you owe money on is currently only valued at $7500. You apply for a redemption and you and the creditor agree that the car is worth $8000. You pay back $8000 to the creditor through your loan and your debt is now considered paid in full. You get to walk out of bankruptcy with no debts and a lower car payment.

The Redemption Process

Here’s a very quick explanation of how the redemption process works.

  1. Apply for a loan with a bank that specializes in doing redemptions.
  2. If you qualify for the loan, then you propose an amount to pay to the creditor based on the value of the car.
  3. In most cases the creditor will agree; if not, then a judge will decide based on evidence of the value of the car.
  4. Pay back the creditor.

Essentially, with a redemption and after a successful bankruptcy, you will have to pay back none of your creditors, get a discharge, and be able to walk out of the bankruptcy with a brand new loan on your car for LESS than you owed previously.

This article is not meant as legal advice, and Bankruptcy is very complicated depending on every persons overall financial situation. So, if you are considering any chapter of the bankruptcy code, is it called one of our attorneys for a free, same day consultation.

To learn more about Chapter 7 or Chapter 13 Bankruptcy, the federal government has excellent information about it on their website at

Fairmax Law™ is a Service of Jaafar Law Group PLLC and is a designated debt relief agency that helps clients file bankruptcy under the federal bankruptcy code.

Fairmax Law is a debt relief and credit repair law firm, with attorneys in multiple states. We are dedicated to bringing people the fresh start that most Americans need. Whether it is a bankruptcy, or a credit repair program, Fairmax Law is the right choice.
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