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Chicago Bankruptcy Lawyer > Blog > Bankruptcy > Can I Keep My Car if I File Bankruptcy?

Can I Keep My Car if I File Bankruptcy?


More people than ever come into our office with this question. Auto loan delinquency rates recently hit a thirty-year high. Regardless of the amount of delinquency, and usually regardless of the vehicle’s financial value, you can keep your car if you file bankruptcy. Otherwise, a car or truck is subject to seizure after just one missed payment. So, bankruptcy isn’t just the best way to keep your car. In many cases, it’s the only way.

A car or truck might not be a family’s most valuable financial assets, but it’s usually the most important asset. Especially in suburban Chicagoland, daily life is pretty much unlivable without a car. A Chicago bankruptcy lawyer understands how important your vehicle is and does whatever it takes to protect it. In many cases, this protection doesn’t stop when the judge closes the case.

Automatic Stay

Auto delinquency rates are at neater-historic highs, as are vehicle repossession rates. Section 362 of the Bankruptcy Code stops the repossession process as well as other forms of adverse creditor actions, such as:

  • Wage garnishment,
  • Foreclosure,
  • Creditor lawsuits, and
  • Eviction.

The Automatic Stay usually goes into full effect once all parties receive actual notice. This requirement could be tricky, especially in areas like vehicle repossession. All involved entities, such as the lender, the servicer, and the repo company, must receive actual notice.

It’s fairly easy to use the Automatic Stay to stop repossession. However, it’s almost impossible to undo repossession. So, if you’ve missed at least one payment, reach out to a Chicago bankruptcy lawyer before it’s too late.

Asset Exemption

735 ILCS 5/12-1001(c) protects up to $2,600 of equity for one motor vehicle. The exemption doubles, in terms of value and number, for joint filers.

In general, most new cars have high values. But since auto loans are amortized (borrowers pay prepaid interest first), new car owners have practically no equity in these vehicles. Used cars are paid off, or almost paid off, but in most cases, they have practically no financial value.

If Jane has a $25,000 Toyota and she has $1,000 of equity in that vehicle, the trustee (bankruptcy manager) cannot seize and liquidate it. The same result holds up if Jane has an older Toyota that’s paid off and worth $2,500.

A Chicago bankruptcy lawyer can also apply some or all of Illinois’ $4,000 wildcard bankruptcy exemption to protect additional equity if needed.400


Usually within two or three weeks of the bankruptcy filing, the lender sends a proposed reaffirmation agreement to the debtor. Some debtors sign such agreements and keep making payments per the original contract. These debtors miss an important opportunity.

Technically, Chapter 7 wipes out all existing financial agreements. That’s why the bank must send a reaffirmation agreement. The terms of this agreement, such as the interest rate, are negotiable.

The redemption option is also available in Chapter 7 cases. If the debtor pays the bank the vehicle’s current fair market value, which is usually significantly lower than the loan balance, the lender must tear up the loan agreement.

Let’s go back to Jane and change the facts a bit. Assume she owes $5,000 on the Toyota, but it’s only worth $3,000. If she gives the bank $3k, the bank must forgive the remaining loan balance.

 Contact a Savvy Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.



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