How to File for Bankruptcy and Keep Your Car


How to File for Bankruptcy and Keep Your Car

If you’re contemplating bankruptcy and worried about keeping your car or truck, the solution isn’t straightforward, but there are strategies available to help you keep it. If you bought a brand-new or even a used vehicle over the last few years and you paid a premium for it, the vehicle may be underwater. There were many buyers during covid and people were offering over value on many hard-to-find vehicles when both manufacturers and dealers were unable to keep up with demand. This in turn pushed many Americans to agree to buy the car or truck that they wanted sometimes for thousands of dollars over the median price. Now that demand has slowed a bit there are many car owners who have vehicles in which they owe far more than the vehicle is worth. 


Can I file for bankruptcy? 

If you owe more than you have, then there is almost always a way to file for bankruptcy. It is a decision that is hard for many people to make but the upside can be quite good if you are struggling to keep up with payments and are running out of any kind of emergency funds you may have tucked away over the years. The first question you should be asking yourself, is whether you are eligible for Chapter 7 bankruptcy (A Fresh Start) or whether you are financially able to file for a Chapter 13 bankruptcy (A Repayment Plan). For some people this is a very simple question to answer as it all depends on whether you can pass the Means Test. The Means Test will determine if the total collective people in your household are above or below the median income in California. Of course, if you have more dependents or family members of any kind in your household, the threshold will be higher. For some people they will easily be able to answer this question but if you are close to the line, it will save you a lot of time to contact a qualified bankruptcy attorney for a Free Consultation



You have to think carefully about the insurance implications when you are considering how to file for bankruptcy and keep your car. Insurance premiums can increase, and if you cancel and get a new policy, you might be stuck with a higher price. Initiating a new policy incurs significant fees, ranging from hundreds to thousands of dollars. Your credit and driving record play crucial roles in determining your insurance rates. Issues like windshield replacement, speeding tickets, and any collisions can impact your premiums. People have been expressing dissatisfaction with Progressive for raising rates. It’s worth exploring options like Costco insurance to find a plan that aligns better with your ability to pay the premiums.


Why People Want to Keep Their Cars 

The reason why nobody is selling their home right now is because if you buy a new one you will have to get a new mortgage at the insanely high current interest rates. The same is true for cars. Everyone realizes that if they buy a new car now, they will not be able to afford the new interest rates as well as the higher cost of insurance. Keeping their current situation may make sense even if they are currently underwater on their vehicle. By purchasing a new car or truck, they will lose both their current auto loan interest rate as well as their current insurance rate. By applying for either one at this time, they will be faced with a huge increase in monthly payments or monthly insurance premiums. The good news is that there is a way for you to keep your car when you file for bankruptcy and in the next section you will learn how to do it. 


Reaffirmation Agreement 

When people file for bankruptcy, they are doing so to discharge or eliminate certain debts so that they can move forward with a new payment plan or no payments at all allowing them to start over financially. However, what if they want to keep something (like a vehicle or appliance) and remove it from the bankruptcy by making a deal with the creditor instead? For cases like this the debtor will sign a Reaffirmation Agreement with the creditor to Reaffirm the debtor’s intent to pay the full amount of the debt. 

By entering into this agreement, it means you are promising to pay the debt even if you have money problems later. By removing it from the bankruptcy and making a separate agreement about it, then it will not be discharged and you will be responsible for the payments no matter what happens.  If the vehicle is destroyed and the insurance doesn’t cover it, you will still be responsible for this debt which is really important to understand. Because you will not be able to file bankruptcy again you need to be sure you will be able to make the payments that you’re agreeing to in your reaffirmed agreement. 


How Do You Know if Reaffirmation is Right for You? 

The first thing you have to consider in this current super volatile consumer climate is whether staying with your current auto payments is better for you than trying to get a new deal. As mentioned before, the rates have changed so much that keeping your old deal may make a lot of sense for you if you got low APR financing on your vehicle. Especially if you don’t have great credit or have had accidents in the past, you may find getting into a different vehicle even if the price tag is lower could end up in overall higher costs. It’s a good time to contact a lawyer to learn how to keep your car when you file a Chapter 7 or Chapter 13 bankruptcy and how it can work for you to sign a reaffirmation agreement. 



Chris Hewitt has been doing bankruptcies in Southern California throughout Riverside, San Bernardino and Orange Counties for almost two decades. If you want to find out how to file for bankruptcy and keep your car, contact our offices right away. Chris has the experience to help you choose the right bankruptcy and get you a Reaffirmation Agreement that works for you. The experience of the right lawyer will far outweigh the cost of the legal fees. We offer super reasonable fees and get you the best possible results under the law. 



Frequently Asked Questions: Debt Consolidation in California
How does debt consolidation affect credit scores?

Initially, it might cause a slight dip due to credit inquiries. However, consistent payments can improve your credit score over time.

What is the difference between debt consolidation and debt settlement?

Debt consolidation involves taking a new loan to pay off debts, while debt settlement is negotiating to pay less than you owe. Settlement can negatively impact your credit score.

What are secured vs. unsecured debt consolidation loans?

Secured loans require collateral (like a house or car), usually with lower interest rates. Unsecured loans don't require collateral but typically have higher rates.

Is debt consolidation right for me?

It depends on your total debt, interest rates, credit score, and payment capability. It's suitable if you can pay off your debt within five years and secure a lower interest rate than your current debts.

Should I consider long-term financial planning?

Yes, debt consolidation should be part of a broader financial strategy including budgeting, cutting expenses, and building an emergency fund.

How do Chapter 7 and Chapter 13 bankruptcies in California differ?

Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 allows debt restructuring over a set period, usually three to five years.

Can my spouse's bank account be garnished for my debt?

Bankruptcy laws offer protections against such actions, but specifics depend on individual cases and state laws.

How can I learn more about my options?

Consulting a California bankruptcy attorney can provide clarity. Firms like The Law Offices of Christopher Hewitt offer free consultations to explore debt relief paths.

Contact Information