Can I Keep My Car if I File for Chapter 7 Bankruptcy?
The most frequently asked question by clients is, "Can I keep my car if I file for bankruptcy." The simple answer is yes, but... if you want to keep your car you have to continue making the payments. If you are behind in your payments when you file for bankruptcy, the automatic stay will prohibit the lien holder from taking any kind of legal action against you including repossession. Not making payments while continuing to retain the vehicle will only last for a brief time before the creditor will be permitted to repossess.
If you choose to keep your automobile, even if the debt can be discharged, you must continue making the payments and enter into a Reaffirmation Agreement with the creditor. Reaffirmation Agreements are not required by the court or by law; they must be voluntary. Essentially, the Reaffirmation Agreement turns a dischargeable debt into a non-dischargeable debt.
A decision to enter into a Reaffirmation Agreement should only be made if it does not place too heavy a burden on you or your family and it is in your best interest. After entering into the agreement it can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court. If you reaffirm the debt and then later fail to make the payments, you will owe the debt as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover the property. The creditor can also take legal action against you.
If you are not represented by an attorney during the negotiations for the Reaffirmation Agreement a bankruptcy judge must review the agreement during a court hearing where the judge will ask the debtor questions and make sure the agreement is in the best interest of the debtor. The judge could disapprove the agreement even if the debtor has signed it.
If you are represented by an attorney during the negotiations no court hearing is required if the attorney signs all appropriate sections of the agreement.