How to Keep Your Car in Chapter 7 Bankruptcy and Chapter 13 Bankruptcy

You can keep your car in both a Chapter 7 bankruptcy and a Chapter 13 bankruptcy provided you meet certain criteria.

In a Chapter 7 bankruptcy you first look to see if the vehicle is an exempt asset. Colorado currently provides a motor vehicle exemption of $7,500. The exemption is $12,500 if you or a dependent of yours is 60 years of age or over or disabled. For example, if you live in Denver and your car is worth $20,000 and you owe $12,500 on it you have $7,500 in equity on the vehicle. So, the vehicle is exempt and you get to keep it provided, however, you keep making timely monthly payments on the vehicle. In some cases you may also need to reaffirm the debt to the lender. Further, if you are in arrears on the payments on the vehicle then the lender may elect to take back the vehicle.

In a Chapter 13 bankruptcy you can take the payments you are in arrears and roll it into the Chapter 13 plan.This is helpful for those who can afford to make the monthly payments but need additional time to pay the arrearage amount and become current. Also, in most cases the amount owed on the vehicle is greater than the value of the vehicle. Let’s say, for example, you live in Aurora and you owe $35,000 on a vehicle you purchased three years ago that is currently worth $20,000. In that case another advantage of the Chapter 13 bankruptcy is the availability of a cram-down. Generally, if the security interest on the motor vehicle was obtained over 910 days (2 ½ years) prior to the filing of the bankruptcy you can cram-down, or reduce, the amount owed on the vehicle to its actual value. In the above scenario, the debtor pays the reduced amount of $20.000 in the plan and keeps the vehicle, saving over $15,000.

If you live in the Denver Metro area and have any questions call LONG & LONG P.C. at 303-832-2655 to schedule your free initial consultation at one of our convenient locations in Denver or Centennial.