This page was written, edited, reviewed & approved by Emil J. Fleysher following our comprehensive editorial guidelines. Emil J. Fleysher, the Founding Partner, has 15+ years of legal experience as a bankruptcy attorney. Our last modified date shows when this page was last reviewed.
Many people worry about what will happen to their car loan if they need to file for bankruptcy. Your car may be one of your most important belongings, especially if you use it to get to work, take care of your family, or manage daily tasks. When you’re dealing with financial problems, losing your car is the last thing you want.
Fleysher Law Bankruptcy & Debt Attorneys helps people understand how bankruptcy affects car loans, monthly payments, and options to keep your car. Whether you're behind on your car payment or looking for a way to make things more manageable, we’ll explain how Chapter 7 and Chapter 13 can help. The right plan can help you save money, protect your vehicle, and give you the chance to move forward.
If you're worried about how filing affects your vehicle, this guide on bankruptcy and car loans: what to know will walk you through your options step by step.
Yes, in many cases, you can keep your car when you file bankruptcy. Whether you can keep it depends on how much you owe on the loan, how much equity is in the vehicle, and which type of bankruptcy you file.
You may also need to keep up with your car payments or work out a new repayment plan with the lender. The bankruptcy trustee will also consider if the car's equity is protected under exemptions.
When you file Chapter 7 bankruptcy, your car loan becomes part of your case. If your car's equity is protected by an exemption and you’re up to date on your car payments, you may be able to keep your car. But if you’re behind or your car is worth much more than what you owe, the bankruptcy trustee might sell the vehicle to pay your creditors.
Whether you keep the car or not depends on how much you owe, how much it’s worth, and your overall financial situation.
Reaffirming a car loan means you agree to continue paying it, even though you’re going through bankruptcy. You’ll sign an agreement that says you’ll keep making the monthly payment just like before. This option is often used when you want to keep the car and are confident you can afford the loan payments.
If you miss payments later, the lender can still repossess the vehicle, and you’ll still be responsible for the balance.
If you can’t afford the car loan or the car is worth less than you owe, you can choose to surrender the car. This means you return it to the lender, and the remaining debt is wiped out through your Chapter 7 case. Surrendering is often a smart choice if the payments are too high or the car has high interest rates. It gives you a clean break and a chance to rebuild without being tied to a bad loan.
Chapter 13 is different because you create a repayment plan to pay back all or part of your debts over 3 to 5 years. This can help you catch up on past car payments and keep your car.
In Chapter 13 bankruptcy, your car loan becomes part of your repayment plan. Instead of paying your lender directly, you make a single monthly payment to a trustee, who then pays your creditors, including your auto loan.
This setup can help you catch up on missed car payments over time and stop repossession. If you file bankruptcy while behind on your loan, Chapter 13 gives you a chance to keep your car while working toward a fresh start.
One of the benefits of Chapter 13 is the chance to lower your car loan payments through a process called a “cramdown.” If your car is worth less than what you owe, and you’ve had the loan for more than 910 days, you might only have to repay the car's fair market value. This can lower both your loan amount and interest rates, making the monthly payment more affordable as part of your repayment plan.
Your car loan is usually treated as a “secured debt,” meaning it’s backed by the vehicle itself. In Chapter 13, secured debts like auto loans often get priority in your repayment plan. This means your plan will include enough to pay off the loan over time.
Staying current on these payments is important to keep your car and complete your Chapter 13 case successfully.
If you're already behind on car payments before you file bankruptcy, you still have options. Depending on your situation, bankruptcy may help you stop a repossession, catch up on missed loan payments, or even walk away from a car loan you can no longer afford.
The type of bankruptcy you file will affect your next steps.
When you file for bankruptcy, the court issues an automatic stay. This legal action stops your lender from repossessing your car, even if you’re behind on payments. This gives you time to figure out your options and decide how to move forward with your vehicle loan.
In Chapter 13, your past-due car payments can be included in your repayment plan. This means you can catch up slowly over 3 to 5 years instead of needing to pay everything at once. It gives you a real chance to keep your car and manage your debt.
Yes, bankruptcy can affect the interest rate on your current or future car loan. When you file, lenders may see you as a higher risk, which can lead to higher interest rates or less favorable loan terms. Your credit report will also reflect the bankruptcy, which plays a big role in how lenders decide your rates and loan offers.
After declaring bankruptcy, especially under Chapter 7, many lenders may offer auto loans with higher interest rates due to the risk they believe you pose. While some car dealers may still approve your application, the terms may include higher fees, shorter repayment periods, or stricter conditions.
It’s important to review any offer carefully before accepting, since financing after bankruptcy often comes with added costs.
It is possible to get a car loan after bankruptcy, but you may need to shop around for the right lender. Some lenders specialize in working with people who have gone through the bankruptcy process and may offer more reasonable terms.
A steady income and a down payment can improve your chances. Rebuilding your credit with on-time payments or using a secured credit card can also help you qualify for better interest rates over time.
Refinancing a car loan during or after bankruptcy is possible, but it depends on your case, the type of bankruptcy, and the lender’s rules. Some lenders may offer better interest rates after your financial situation improves, but others may be more cautious.
Timing, credit history, and the value of your vehicle all play a role in this decision.
Refinancing during an active bankruptcy case, especially in Chapter 13, usually requires permission from the bankruptcy court. Most lenders are hesitant to refinance while you are in a repayment plan or under the court’s supervision. You may need to show that refinancing will lower your monthly payment or offer other clear benefits to have your request approved.
Once your bankruptcy is discharged, refinancing becomes easier, especially as you rebuild your credit. Some lenders are willing to work with borrowers who have completed Chapter 7 or Chapter 13, especially if you’ve shown steady income and on-time payments. With time, you may qualify for lower interest rates and better loan terms, which can save you money and help improve your credit report.
Bankruptcy does not change your car’s value, but it can affect how your loan is handled.
In Chapter 7, if your car's equity is more than what the law allows you to keep, the bankruptcy trustee may choose to sell the vehicle to help pay creditors. If your car is fully protected under exemptions and you're current on your car payments, you may be able to keep your car without changes.
In Chapter 13, you may be able to reduce your loan amount to match your car’s fair market value and even lower the interest rate through your repayment plan, which can lead to more manageable monthly payments.
Understanding how your car loan fits into the bankruptcy process can be difficult, especially when you are also dealing with stress, debt, and other financial issues. Speaking with an experienced bankruptcy attorney is the best way to protect your legal rights and find the best strategy to keep your vehicle.
Fleysher Law takes time to review your full financial picture, explain how Chapter 7 or Chapter 13 might apply to your situation, and help you avoid bankruptcy issues that could cost you your car. Whether you want to catch up on missed payments, lower your interest, or consider giving up a vehicle loan you can’t afford, we’re here to guide you with clear advice and real solutions.
1. Is a car loan considered secured or unsecured debt?
A car loan is considered a secured debt because the vehicle acts as collateral. If you stop paying, the lender can repossess it. Unsecured debt, like credit cards, is not tied to any property and is treated differently in bankruptcy.
2. How long will bankruptcy stay on my credit report?
Chapter 7 bankruptcy typically stays on your credit report for seven years, sometimes up to ten. During that time, credit bureaus will report the case, but you can still work on rebuilding your credit with on-time payments and a stable financial routine.
3. Can I keep a vehicle free and clear in bankruptcy?
If your vehicle is fully paid off and within the allowed equity exemption, you may be able to keep your vehicle free and clear. Whether you keep it depends on the type of bankruptcy, how much it’s worth, and if it qualifies for protection.
4. How do I find a lender with favorable terms after bankruptcy?
We wholeheartedly encourage research. Look for lenders that specialize in helping people after bankruptcy. Read online articles, check free reports, and compare options. Some may offer favorable terms like lower interest rates or better monthly payments, especially if you can show you’ve remained current on recent bills.
5. Is refinancing a viable option after bankruptcy?
Yes, refinancing can be a viable option after your case is complete. If your credit has improved or you are earning more money, you may qualify for better loan terms. Always compare offers before signing and make sure refinancing will truly benefit your budget.
If you are thinking about filing Chapter 7 bankruptcy and are unsure what will happen to your car loan, Fleysher Law Bankruptcy & Debt Attorneys is here to help. We understand how important your vehicle is to your daily life, and we will guide you through your options, whether that means keeping your vehicle free and clear, reaffirming the loan, or including it in your case.
Our team takes time to learn about your full financial situation so we can recommend what truly works best for you. Whether you want to remain current on your car payments, reduce your debt, or walk away from a loan you can no longer afford, we will explain everything in simple terms.
We offer a free consultation, so there’s no pressure or upfront cost to learn where you stand. Contact us today and take the first step toward a better financial future with a team that puts your needs first.
Emil specializes in consumer bankruptcy, debt settlement, and mortgage modification, offering a holistic approach to solving mortgage and debt problems. Emil listens to clients, understands their circumstances and goals, and helps them make the right choices by presenting all options and contingencies.
He is dedicated to helping South Floridians regain their financial freedom from overwhelming debt caused by high interest credit cards, bad mortgage loans, and uninsured medical expenses.
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