If I File for Bankruptcy, Can I Keep My House and Car?
One of the most common questions we receive is: can I file bankruptcy and keep my house and car? Many people are in need of financial relief through bankruptcy but hesitate to file or learn about filing because they incorrectly assume they will lose an asset, such as their home or car. The general goals of bankruptcy are to provide the filer(s) a fresh financial start and to protect your assets. To that aim, the bankruptcy laws have a clearly defined series of exemptions which protect your property from creditors.
To discuss if bankruptcy is right for you and to review your situation please call 215-545-0008 or 856-890-9003 or schedule an initial consultation online with a debt relief lawyer. We look forward to helping you.
Can I File Bankruptcy and Keep My House?
You can file bankruptcy and potentially keep your house, depending on the circumstances. Under Chapter 7 bankruptcy, you may keep your home if you can exempt its equity under your state’s homestead exemption laws, and if you’re current on your mortgage payments.
Under Chapter 13 bankruptcy, you can keep your house by restructuring your debts and creating a repayment plan, provided you continue to make mortgage payments and meet other plan requirements. Consulting with a bankruptcy attorney can help you understand the specifics based on your financial situation and local laws.
If I File Bankruptcy, What Happens to My House?
When you file for bankruptcy, what happens to your house depends on the type of bankruptcy and your individual circumstances. In Chapter 7 bankruptcy, if your home’s equity is covered by your state’s homestead exemption and you’re current on mortgage payments, you can likely keep your house. If the equity exceeds the exemption, the trustee might sell the house to pay creditors.
In Chapter 13 bankruptcy, you can keep your house by including mortgage arrears in your repayment plan and continuing to make mortgage payments. This repayment plan must be approved by the bankruptcy court. Each case is unique, so consulting with a bankruptcy attorney is crucial to understand your specific situation and options.
Do You Lose Your House in Bankruptcy?
Whether you lose your house in bankruptcy depends on many factors. The chapter of bankruptcy you file, the equity in your home, and your ability to make mortgage payments are all extremely important if you want to keep your home.
In Chapter 7, your bankruptcy trustee may sell the home to pay off your creditors if its equity exceeds your state’s homestead exemption. However, if the equity does not exceed those limits and you are current on your mortgage payments, you can most likely keep it.
Chapter 13 generally allows filers to protect their home as long as they include any mortgage arrears in their repayment plans. They must also keep up with future mortgage payments. Again, speaking with a bankruptcy and foreclosure attorney in Pennsylvania can help you determine the best course of action for your situation.
Protecting Your Home in Chapter 7
Can I Keep My House in Chapter 7?
You can keep your house in Chapter 7 bankruptcy if its equity is covered by your state’s homestead exemption and you are current on your mortgage payments. The homestead exemption protects a certain amount of equity in your home from being used to pay off creditors. If the equity exceeds the exemption, the bankruptcy trustee might sell the house to pay your debts. Chapter 7 primarily discharges unsecured debt. If you have significant secured debt, such as mortgage arrears, your collateral may be seized to pay for the difference.
How Much Equity Can I Have in My Home and Still File Chapter 7?
The amount of equity you can have in your home and still file for Chapter 7 bankruptcy depends on your state’s homestead exemption laws. Each state sets its own exemption limits, which can vary widely. Additionally, federal bankruptcy law provides a homestead exemption option that you might use if your state allows it.
Pennsylvania does not have a homestead exemption for bankruptcy, but you can use the federal homestead exemption of up to $27,900 of equity. New Jersey also does not offer a homestead exemption, which means filers can use the federal exemption of $27,900. Spouses who file joint bankruptcy can double the federal homestead exemption amounts. Remember that, if your equity exceeds the exemption amount, your home may be sold to pay off your mortgage debt.
Protecting Your Home in Chapter 13
Will I Lose My House If I File Chapter 13?
Usually, no. One of the main benefits of filing Chapter 13 is being able to keep most or all of your property in the process. Chapter 13 allows you to create a repayment plan to catch up on past-due or missed payments over three to five years while continuing to make regular mortgage payments going forward. As long as you adhere to the repayment plan and keep current with your mortgage payments, you can keep your house.
How Much Equity Can I Have in My Home and Still File Chapter 13?
In Chapter 13 bankruptcy, there isn’t a strict limit on the amount of equity you can have in your home. Instead, the amount of equity affects your repayment plan. The key consideration is that your repayment plan must propose to pay your unsecured creditors at least as much as they would receive if you filed for Chapter 7 bankruptcy.
This means that if you have significant equity in your home that exceeds your state’s homestead exemption, you must ensure your plan pays an equivalent amount to your creditors over the repayment period. Essentially, the more equity you have, the higher your repayment plan might need to be to satisfy this requirement.
Can I File Bankruptcy and Keep My Car?
You can file for bankruptcy and potentially keep your car. In Chapter 7 bankruptcy, you can usually keep your car if its equity falls within your state’s vehicle exemption limit, and you continue making payments on any existing car loan. If the car’s equity exceeds the exemption limit, the trustee might choose to sell the vehicle to pay creditors, but you could potentially keep it by paying the excess equity to the trustee.
In Chapter 13 bankruptcy, you have a better chance of keeping your vehicle as long as you continue to make the loan payments. If you owe more on the car than it’s worth, you might even be able to “cram down” the loan amount to match the current value of the car, potentially reducing your overall car payments.
If I File Bankruptcy, What Happens to My Car?
Similarly to what happens to what happens to your home if you file for bankruptcy, this heavily depends on a few factors. These factors are the equity you have in your vehicle, the type of bankruptcy you file, and your ability to make car loan payments. In Chapter 7, you can keep your car if the equity in the vehicle is covered by your state’s exemption and you continue making any necessary payments. If the equity exceeds allowable exemptions, the trustee might sell the vehicle to settle debts and pay creditors.
In Chapter 13, you generally retain possession of your car as part of the debt reorganization process. You can include your car loan in the repayment plan, potentially adjusting the terms (such as reducing the principal to the car’s current value if the loan qualifies). It’s important to keep up with your car payments during this period to avoid repossession.
Protecting Your Vehicle in Chapter 7
Can I Keep My Car If I File Chapter 7?
It depends. If your car’s equity is less than or equal to the federal exemption limits, you can probably keep it in Chapter 7. You must also continue to make monthly payments on the car if you want to keep it. If the equity exceeds the exemption limit, the bankruptcy trustee may seize the vehicle and sell it to pay off your creditors. In some cases, you could pay the nonexempt equity to keep the vehicle.
When Do I Have to Surrender My Vehicle in a Chapter 7?
The main reason why you might have to surrender your vehicle in a bankruptcy filing is if its equity exceeds the exemption limit. If this is the case and you cannot reaffirm the car loan or continue making payments, you will likely lose the vehicle in a sale. However, the decision to surrender should be based on your ability to afford payments and the financial wisdom of keeping the vehicle, given its value and associated costs. Sometimes, due to sales costs and other expenses incurred from surrendering the vehicle, you may still owe money on it after the sale.
What Happens to Your Car Loan When You File Chapter 7?
When you file for Chapter 7 bankruptcy, your auto loan can be handled in a few different ways depending on your choice and financial situation. Generally, if you wish to keep the car, you can “reaffirm” the debt, which means you agree to continue paying the loan under the existing terms despite the bankruptcy. This requires maintaining regular payments and is often chosen if the car is essential for your daily life.
If you decide you cannot or do not want to keep up with the payments, you can surrender the car to the lender, and the debt will typically be discharged, meaning you are no longer responsible for paying it. Alternatively, in some cases, you might be able to redeem the car by paying its current value in a lump sum, often if the car is worth less than what you owe.
Can I Keep My Paid Off Car in Chapter 7?
Yes, you can generally keep a paid-off car in Chapter 7 bankruptcy if the car’s value is within the exemption limit set by your state. Each state has a specific exemption amount for vehicles, which protects a certain amount of car equity from being claimed by creditors. Pennsylvania and New Jersey do not have vehicle exemptions that are specific to those states, so they use the federal exemption. The federal vehicle exemption is $4,450. If the value of your car does not exceed this exemption amount, you can keep it after filing for Chapter 7.
Protecting Your Vehicle in Chapter 13
Can I Keep My Car If I File Chapter 13?
Yes, you can typically keep your car if you file for Chapter 13 bankruptcy. In Chapter 13, you create a repayment plan to catch up on past-due payments while continuing to make regular payments on your car loan. As long as you adhere to the terms of your repayment plan and keep up with ongoing car loan payments, you can retain possession of your vehicle. The repayment plan allows you to satisfy secured and unsecured creditors without losing your property.
When Do I Have to Surrender My Vehicle in a Chapter 13?
You typically have to surrender your vehicle in Chapter 13 bankruptcy if you are unable to afford the payments or if you choose not to include the car loan in your repayment plan. If you fall behind on your car loan payments during the Chapter 13 process and cannot catch up, the car loan lender may request permission from the bankruptcy court to repossess the vehicle. Additionally, if you decide not to keep the vehicle, you can surrender it voluntarily as part of your bankruptcy plan. This is known as voluntary repossession.
How to File for Bankruptcy and Keep Your Car
To file for bankruptcy and keep your car, you must first assess your car’s equity and your ability to continue making payments. In Chapter 7 bankruptcy, ensure your car’s equity falls within your state’s exemption limits, allowing you to retain ownership. If necessary, reaffirm the car loan and commit to continuing payments. Alternatively, in Chapter 13 bankruptcy, include the car loan in your repayment plan, ensuring you catch up on any arrears while maintaining ongoing payments.
2022-2025 Federal Bankruptcy Exemptions (Per Person)
- $27,900 of equity in your principal residence 11 USC § 522(d)(1)
- $4,450 in equity for your motor vehicle exemption 11 USC § 522(d)(2)
- $1,875 for jewelry 11 USC § 522(d)(4)
- $14,875 for household goods, furnishings, appliances, clothes, books, animals, crops, musical instruments 11 USC § 522(d)(3)
- $2,800 for tools of the trade 11 USC § 522(d)(6)
- $14,875 in loan value, accrued dividends, or a life insurance policy interest 11 USC § 522(d)(8)
- $27,900 for personal injury 11 USC § 522(d)(11)(D)
- Retirement accounts such as a 401(k), 403(b) or 457(d) are fully exempt in bankruptcy. The federal bankruptcy exemption limit for IRAs is $1,512,350
- $13,950 for any property owned 11 USC § 522(d)(5)
Contact a Pennsylvania and New Jersey Bankruptcy Attorney with Sadek Law Today
Navigating bankruptcy can be overwhelming, but with the right guidance, it’s possible to find a path forward while protecting your most essential assets. At Sadek Bankruptcy Law Offices, we understand the complexities of bankruptcy law in Pennsylvania and New Jersey, and we’re here to help you achieve financial stability. Whether you’re looking to keep your home or retain ownership of your car, our experienced attorneys can provide the support you need to navigate the process successfully.
From understanding exemption limits to crafting repayment plans, we’ll work tirelessly to ensure your best interests are represented every step of the way. Don’t face bankruptcy alone—reach out to Sadek Bankruptcy Law Offices today for compassionate and knowledgeable legal assistance.