Can You Keep Your Car After Filing for Bankruptcy in Florida?

For many people in Florida, a car is essential for getting to work, taking children to school, attending appointments, and handling everyday responsibilities. That can make the possibility of losing a vehicle one of the biggest concerns when considering bankruptcy.

The good news is that filing for bankruptcy does not automatically mean you will lose your car. Whether you can keep it depends on factors such as the vehicle's equity, whether you have a car loan, whether you are current on your payments, the exemptions available to you, and whether you file Chapter 7 or Chapter 13.

Does Bankruptcy Automatically Take Your Car?

No. Simply filing bankruptcy does not mean your vehicle will automatically be taken away.

One of the first considerations is your equity in the car. Equity is generally the difference between the vehicle's current value and the amount you still owe on the loan.

For example, if your vehicle is worth $15,000 and you owe $12,000, you have approximately $3,000 in equity.

The amount of equity matters because bankruptcy exemptions may protect some or all of that value.

What Is Florida's Motor Vehicle Exemption?

Florida law provides an exemption specifically for motor vehicles.

Under current Florida law, a debtor may exempt up to $5,000 of their interest in one motor vehicle from legal process.

This exemption was increased from Florida's previous $1,000 limit, making it particularly important to use current information when evaluating a bankruptcy case.

Florida also provides a separate personal-property exemption of up to $4,000 for certain debtors who do not claim or receive the benefit of the Florida homestead exemption. Whether that additional exemption is available depends on the person's circumstances.

What if You Own Your Car Outright?

If you do not have a loan on the vehicle, the key question will generally be how much the car is worth and how much of that value can be protected through applicable exemptions.

If the vehicle's equity is fully protected, you may be able to keep it in Chapter 7.

If its value exceeds the available exemptions, the situation can become more complicated because nonexempt equity may be available to the Chapter 7 trustee for the benefit of creditors.

That does not necessarily mean the vehicle will be lost, but it is important to understand the amount of protected and unprotected equity before filing.

Can You Keep a Financed Car in Chapter 7?

Having a car loan changes the analysis because the lender generally has a security interest in the vehicle.

If you want to keep a financed vehicle after filing Chapter 7, one potential option is a reaffirmation agreement.

A reaffirmation agreement generally means agreeing to remain personally responsible for the car debt despite the bankruptcy discharge. In return, the creditor agrees not to repossess the vehicle as long as the required payments are made.

Because reaffirmation means keeping personal responsibility for a debt that might otherwise be discharged, the decision should be carefully evaluated.

What Is Redemption?

Redemption is another potential Chapter 7 option.

Redemption allows a debtor to keep certain secured personal property by paying the creditor the value of the property in a lump sum rather than continuing with the existing secured debt. The U.S. Courts specifically identifies redemption as a procedure that can allow a Chapter 7 debtor to retain collateral such as a vehicle.

The practical challenge is that redemption generally requires the necessary funds to be paid at once.

What if You Don't Want to Keep the Car?

Bankruptcy can also provide an opportunity to surrender a vehicle that has become unaffordable.

If your monthly payment is too high, the car needs expensive repairs, or you owe substantially more than the vehicle is worth, keeping it may not always be the best financial choice.

Instead of continuing to pay for a vehicle that no longer fits your budget, surrender may allow you to address your personal liability for qualifying remaining debt through the bankruptcy process.

The right decision depends on the loan, vehicle value, financial circumstances, and type of bankruptcy.

What if You Are Behind on Your Car Payments?

Filing bankruptcy generally triggers an automatic stay, which temporarily prevents most creditors from continuing collection actions.

However, the automatic stay does not provide a permanent right to keep a financed vehicle without addressing missed payments and the lender's secured interest.

If you are significantly behind and want to keep the vehicle, Chapter 13 may provide more flexibility than Chapter 7.

How Can Chapter 13 Help You Keep a Car?

Chapter 13 allows eligible individuals to reorganize debts through a repayment plan that generally lasts three to five years.

For someone who has fallen behind on a vehicle loan, Chapter 13 may provide an opportunity to address secured debt through the repayment plan rather than immediately losing the vehicle.

The treatment of the car loan depends on several factors, including when the vehicle was purchased, the amount owed, its value, and the terms of the proposed Chapter 13 plan.

Chapter 13 can therefore be worth considering when keeping a vehicle is a major priority but simply catching up immediately is not financially realistic.

Can the Lender Repossess Your Car After You File?

The automatic stay generally prevents a lender from proceeding with a repossession immediately after bankruptcy is filed.

But that protection has limits.

A secured creditor may ask the bankruptcy court for relief from the automatic stay, particularly when payments are not being made or the creditor's interest in the vehicle is not adequately protected.

Filing bankruptcy should therefore not be viewed as a way to permanently keep a financed car without dealing with the underlying loan.

What if Your Car Has Already Been Repossessed?

Timing can make a major difference.

If you are behind on your payments but the lender has not yet repossessed the vehicle, filing bankruptcy may affect what the lender can do next because of the automatic stay.

Once a vehicle has already been repossessed, recovering it can involve additional legal and factual issues. Someone facing an imminent repossession should therefore consider their options before assuming they can simply retrieve the vehicle later by filing bankruptcy.

Should You Reaffirm Your Car Loan?

A reaffirmation agreement can help someone retain a financed vehicle, but it also carries an important consequence: you remain personally liable for the reaffirmed debt.

For example, if you reaffirm the loan and later become unable to make the payments, the lender may repossess the vehicle. Depending on the circumstances and agreement, you could remain responsible for a deficiency after the vehicle is sold.

The Southern District of Florida Bankruptcy Court explains that a reaffirmation agreement keeps the debtor personally liable on the debt even though bankruptcy has been filed.

Before reaffirming, consider whether:

• The vehicle is necessary
• The monthly payment remains affordable
• You are current or can become current
• The vehicle is reliable
• The loan balance makes sense compared with the car's value
• Keeping the debt fits your post-bankruptcy budget

The goal of bankruptcy is financial relief, so keeping an unaffordable vehicle loan may work against that goal.

Chapter 7 or Chapter 13: Which Is Better for Keeping Your Car?

There isn't one answer for everyone.

Chapter 7 may work well when your vehicle equity is protected, you are current on an affordable loan, or another available option allows you to retain the car.

Chapter 13 may be worth considering when you are behind on payments, need additional time to address the debt, or have property that could be at greater risk in Chapter 7.

Your income, vehicle value, loan balance, payment history, other assets, and overall debt situation should all be considered before choosing between the two.

Don't Transfer or Hide Your Vehicle Before Filing

If you are worried about losing your car, transferring the title to a relative or trying to conceal ownership is not the solution.

Bankruptcy requires honest and complete disclosure of assets and financial transactions. Transfers made before filing can be scrutinized and may create significant problems in the case.

Instead, determine what exemptions and bankruptcy options are legally available to protect the vehicle.

How Can the Law Office of Paul L. Urich, P.A. Help?

If keeping your vehicle is important to you, understanding your options before filing bankruptcy can help you make a more informed decision.

The Law Office of Paul L. Urich, P.A. assists individuals in Orlando and throughout Central Florida with Chapter 7, Chapter 13, repossessions, creditor problems, foreclosure, and other debt-relief matters.

With more than 25 years of experience in debt relief, Attorney Paul L. Urich can evaluate your vehicle's equity, loan balance, payment status, and available exemptions and explain how Chapter 7 or Chapter 13 may affect your car.



If debt is overwhelming you but you are concerned about protecting your vehicle, contact the Law Office of Paul L. Urich, P.A. to discuss your bankruptcy options.