Can You Keep Your Home and Car During Bankruptcy?

Filing for bankruptcy is often seen as a last resort for individuals facing overwhelming debt. While the bankruptcy process allows you to eliminate or repay a portion of your debts, it’s natural to worry about losing your most cherished assets, such as your car or home.

Fortunately, there are legal protections in place that may allow you to keep these valuable items while navigating bankruptcy.

Understanding the bankruptcy code is key. Bankruptcy in the United States is typically divided into two main types for individuals: Chapter 7, known as ‘liquidation bankruptcy’, and Chapter 13, often referred to as ‘wage earner’s bankruptcy’.

In Chapter 7 bankruptcy, some of your assets may be sold or ‘liquidated’ to repay creditors. Chapter 13, on the other hand, allows you to keep your assets while restructuring your debts into a manageable repayment plan.

The type of bankruptcy you file will significantly impact whether you can keep your home or car.


Exemptions in Bankruptcy

An important aspect of bankruptcy law is the concept of exemptions. These are laws that allow you to protect certain property from being seized in bankruptcy.

The specific exemptions available depend on federal and state laws.

Federal exemptions: The federal bankruptcy code provides a list of exemptions, including a homestead exemption to protect some of the equity in your home, and an exemption for a vehicle up to a certain value.

State exemptions: Each state has its own set of bankruptcy exemptions. Some states allow you to choose between state and federal exemptions, while others require you to use the state exemptions. These can be more generous than federal exemptions in some cases.

In both cases, if your equity in the home or car is less than the exemption amount, you will typically be able to keep these assets in a Chapter 7 bankruptcy.


Chapter 13 Bankruptcy and Your Assets

If you are behind on your mortgage or car loan and want to keep these assets, Chapter 13 bankruptcy may be a better choice.

Regarding your assets, Chapter 13 bankruptcy is designed to protect them, unlike Chapter 7 bankruptcy, which may require you to liquidate some assets to repay creditors. In Chapter 13 bankruptcy, debtors propose a repayment plan to make installments to creditors over three to five years.

During this period, creditors are not allowed to start or continue collection efforts, and your assets are protected as long as you keep up with the payments on secured debts and the repayment plan. This means you can keep your house and car, for instance, provided you stay current with your payments.

It’s essential to note that certain types of debt, like most tax debts and student loans, are not dischargeable under Chapter 13, but this process can provide a feasible pathway to manage these debts and protect your assets.

As long as you adhere to the terms of your repayment plan, you can avoid foreclosure or repossession.


Bankruptcy and Secured Debts

A crucial point to understand is that bankruptcy typically doesn’t eliminate secured debts, such as a mortgage or car loan.

Secured debts are debts that are backed or secured by an asset or collateral, such as a house in a mortgage or a car in an auto loan. If you fail to repay the debt, the lender has the right to take back the asset.

In a bankruptcy proceeding, how secured debts are treated depends on the type of bankruptcy filed. In Chapter 7 bankruptcy, you may choose to surrender the asset, or you may be able to keep it by reaffirming the debt and continuing to make payments. However, if you’re behind on your payments, the lender can still repossess the asset.

In Chapter 13 bankruptcy, you can often keep your assets by including the arrearages (overdue payments) in your repayment plan and maintaining your regular ongoing payments.

It’s important to understand that secured debts are generally not discharged in bankruptcy the same way unsecured debts are. Instead, the treatment of these debts is more about managing them effectively within the bankruptcy process.

While bankruptcy can wipe out your personal obligation to pay the debt, the lender still has the right to take the property if you default on your loan.

Therefore, if you want to keep these assets, it’s essential to stay current on your payments.


Learn how to keep your home and car during bankruptcy


Consider a Reaffirmation Agreement

In some cases, you may consider signing a reaffirmation agreement during a Chapter 7 bankruptcy. This is a legal document that states you wish to keep an asset, like a car, and are willing to continue paying the debt despite the bankruptcy filing.

A bankruptcy reaffirmation agreement is a legal contract in which a debtor in a Chapter 7 bankruptcy proceeding agrees to repay all or a portion of a debt that could otherwise be discharged in the bankruptcy.

This agreement is commonly used with secured debts, such as car loans or mortgages, where the debtor wants to keep the asset.

The debtor agrees to continue making payments on the debt, and in return, the creditor agrees not to repossess the collateral as long as the debtor complies with the terms of the agreement.

It’s important to understand that signing a reaffirmation agreement is a serious commitment because it removes the debt from the bankruptcy discharge, meaning you will still be legally obligated to repay it even after the bankruptcy case is over.

For this reason, it’s highly recommended that debtors seek the advice of a bankruptcy attorney before entering into such an agreement.


Consult a Bankruptcy Attorney

Bankruptcy is a complex legal process, and the details matter enormously. While this article provides a general overview, your specific circumstances can greatly influence the outcome.

Therefore, it’s always advisable to consult with a qualified bankruptcy attorney before deciding to file.

Remember, while bankruptcy can provide a fresh start, it also carries significant consequences. It’s essential to thoroughly understand the process, your rights, and the potential outcomes before making a decision.

In summary, while filing for bankruptcy does put your assets at risk, there are legal mechanisms, such as exemptions and Chapter 13 repayment plans, that can help you keep your home and car.

Understanding these options and seeking professional advice is the key to navigating the bankruptcy process effectively and coming out the other side in the best position possible.


Bankruptcy and Your Future

One of the most important points to remember when considering bankruptcy is that it’s not a death sentence for your financial future.

Yes, a bankruptcy filing will remain on your credit report for seven to ten years, depending on the type, but its impact will decrease over time.

There are numerous strategies and actions you can take post-bankruptcy to rebuild your credit and financial standing faster than you might think.


Post-Bankruptcy Action Plan

  • Create a Budget: Post-bankruptcy, it’s crucial to establish a realistic and sustainable budget. This will help you avoid falling into debt again and will set the stage for a secure financial future.
  • Rebuild Credit: Using credit responsibly is one of the best ways to rebuild your credit score after bankruptcy. You might start with a secured credit card or a credit-builder loan, always ensuring you make payments on time.
  • Save and Invest: Establishing an emergency fund can prevent future financial crises, and investing for the future can help you achieve long-term financial goals.
  • Stay Insured: Ensuring that your home and car are properly insured can protect you from unexpected events that could put you in financial jeopardy.

The decision to file for bankruptcy is significant and deeply personal. It involves a complex interplay of legal, financial, and emotional factors.

However, if you find yourself facing this decision, remember that there are strategies and legal protections available to help you retain your most important assets – your home and your car.

In the end, bankruptcy is a tool designed to provide relief to those struggling with insurmountable debt. It’s a pathway that, when navigated properly, can lead to a fresh start and the chance to rebuild a stable, secure financial future.

It’s not an easy journey, but with knowledge, an attorney by your side, and careful planning, you can emerge stronger, more financially savvy, and prepared to take on whatever comes next.


Learn More

At Blue Bee Bankruptcy, our lawyers are highly experienced in bankruptcy options. More importantly, we understand that each case we receive is unique and each client has different needs and goals. We will discuss these signs with you and decide the best route to take.

We strive to help our clients rebuild their lives and take steps toward a better financial future through filing. 


Best Bankruptcy Attorneys in Salt Lake City


If you’re dealing with the potential of bankruptcy, give us a call. Our team will work to help you by reviewing all of the options our firm has available. We will ensure you’ll get the best possible outcome for your situation.

Get in touch today so we can start working on either halting bankruptcies or preventing them from taking place altogether!

Contact Us Today For Help! You can schedule your free consultation online or call us at (801) 285-0980.


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