Will I Lose My Car in Bankruptcy?

Whether you keep your car in bankruptcy depends on two things: how much equity you have in the vehicle (compared to your state's vehicle exemption), and whether you're financing the car and, if so, what you choose to do with that loan.

If You Own Your Car Outright

If you own your car free and clear (no loan), the question is whether your car's value falls within your state's motor vehicle exemption. These exemptions protect a certain amount of vehicle equity from the bankruptcy trustee.

Vehicle exemption amounts for Easy-Case pilot states (2024):

• Illinois: Up to $2,400 in vehicle equity
• Indiana: Up to $10,250 in vehicle equity
• Wisconsin: Up to $4,000 in vehicle equity (or up to $75,000 using the wildcard exemption — see below)

If your car is worth less than the exemption amount, the trustee cannot sell it. If your car is worth more, the trustee could sell it, return your exempt amount, and use the remainder to pay creditors. In practice, older or high-mileage vehicles rarely trigger trustee interest because the cost of sale reduces the net proceeds significantly.

Wildcard Exemptions

Many states — including Indiana and Wisconsin — also offer a "wildcard" exemption: a pool of additional exemption value that can be applied to any property, including a vehicle. If your car equity exceeds the dedicated motor vehicle exemption, you may be able to protect additional value with the wildcard.

If You're Still Paying Off Your Car Loan

If you have a car loan, the lender holds a security interest (lien) in the vehicle. Bankruptcy doesn't automatically eliminate the lender's lien, even if the debt might otherwise be dischargeable. You have three main options:

1. Reaffirmation: You sign a new agreement (a "reaffirmation agreement") acknowledging that you'll remain personally responsible for the loan after bankruptcy, in exchange for keeping the car. The lender continues to accept your payments and does not repossess the vehicle. Most people who want to keep a financed car choose reaffirmation.

2. Redemption: In Chapter 7, you can pay the lender a lump sum equal to the current market value of the car (even if you owe more) to fully satisfy the lien and keep the vehicle. This requires cash upfront and is less common.

3. Surrender: If the car is worth less than you owe (negative equity) or you can't afford the payments, you can surrender the vehicle. The lender gets the car back, and the remaining loan balance after sale is discharged as an unsecured debt.

What About Chapter 13?

In Chapter 13, you keep all your property during the repayment plan as long as your plan pays creditors appropriately. A Chapter 13 plan can also "cram down" a car loan — reducing the loan balance to the current market value of the vehicle — if you've had the loan for more than 910 days before filing. This can significantly reduce your total car payments.

Practical Advice

For most filers with older vehicles worth under $10,000, the car stays — the exemption covers it or the trustee has no interest. For financed vehicles, continuing payments and reaffirming is the most common path to keeping your car. Understand how exemptions work generally or learn about Chapter 13's asset protections.

Easy-Case walks you through claiming vehicle exemptions correctly as part of the petition interview — including identifying the appropriate exemption for your state and vehicle value.