Debts
What happens to a car loan in bankruptcy?
A car loan is a secured debt, so there are two separate questions: what you owe, and the lender's lien on the car. A discharge can release you from personal liability for the loan, but the lien stays, and the lender may still be able to take the car back. In Chapter 7 you choose to surrender the car, redeem it or reaffirm the loan. In Chapter 13 the loan can be paid through the plan.1 2 3 4 5
Connect to a bankruptcy lawyerA discharge can end your personal liability for a car loan, but the lender's lien on the car survives. This page covers the choices you have in Chapter 7, how Chapter 13 handles the loan, and the deadlines.
General information, not legal advice. Rules and amounts change; check with a lawyer or the court before you act.
In this guide
Why does the lender still have rights after a discharge?
A secured debt is backed by collateral. With an auto loan, the car is the collateral and the lender holds a lien on it.1
A discharge releases you from personal liability for the debt. It does not remove a lien. A valid lien that was not removed in the case stays in place afterward, and the secured creditor may enforce it to recover the property.3 2
While the case is open, the automatic stay covers attempts to repossess property. A lender can ask the court to lift the stay, and the court grants that for cause, including when the lender's interest in the property is not adequately protected.6
What are your choices for a financed car in Chapter 7?
If you file Chapter 7 as an individual and a car secures a debt, you must file a statement of intention that says which of these you will do.4
| Option | What it means | What to know |
|---|---|---|
| Surrender4 3 | You give the car back to the lender. | The discharge releases you from personal liability for the debts it covers. |
| Redeem7 8 | You keep the car by paying the lender the amount of its allowed secured claim in full at the time of redemption. | A claim is secured only up to the value of the car, so that amount can be less than the loan balance. The car must be for personal use and exempt or abandoned, and the debt must be a dischargeable consumer debt. |
| Reaffirm1 2 | You agree to keep paying the loan in exchange for keeping the car. | Your personal liability for that debt is not discharged. |
The value used is replacement value on the filing date: the price a retail merchant would charge for a car of that kind, considering its age and condition.8
What are the Chapter 7 deadlines for a car loan?
- File the statement of intention within 30 days after filing the petition or by the date of the meeting of creditors, whichever is earlier.4
- Carry out the choice within 30 days after the first date set for the meeting of creditors.4
- If you reaffirm, sign the written agreement and file it with the court before the discharge is entered.2
Missing these dates has a consequence. If the statement is not filed on time, or the choice is not carried out on time, the automatic stay ends for the car and it is no longer part of the bankruptcy estate.6
What should you know before reaffirming a car loan?
Reaffirming means your personal liability for that debt is not discharged. The agreement comes with required disclosures and a statement of your income and expenses. If what is left after expenses is not enough to pay the debt, undue hardship is presumed and the court may refuse to approve the agreement.2
Unless you have an attorney, the bankruptcy judge must approve the agreement.2
You can cancel a reaffirmation agreement at any time before the discharge or within 60 days after it is filed with the court, whichever is later.9
You may also repay any debt voluntarily without a reaffirmation agreement. That does not remove the lender's lien, so ask a lawyer and the lender what would happen to the car in your situation.2 3
How does Chapter 13 handle a car loan?
In Chapter 13, a car loan can be rescheduled and spread over the life of the plan. To keep the car, the plan must give the lender at least the value of the collateral.5
A timing rule limits that. For a loan used to buy a car for personal use within 910 days before filing, the plan generally cannot reduce the secured amount to the car's current value. The federal courts put it this way: for a loan used to buy the collateral within certain time frames before filing, the plan must provide for full payment of the debt, not just the value of the collateral.10 5
A Chapter 13 plan may instead provide for surrendering the car to the lender.10
Plan payments to the trustee must start within 30 days after filing, even if the court has not yet approved the plan.5 11
What about a co-signer, and what does filing cost?
In Chapter 13, a special codebtor stay generally stops creditors from collecting a consumer debt from someone who owes it together with you. Ask a lawyer how your own filing would affect a co-signer.5
Court fees are $338 for Chapter 7 and $313 for Chapter 13 (effective December 1, 2023).12 13 5
Common questions
Can I keep my car if I file bankruptcy?
It depends on the chapter, the loan and your exemptions. In Chapter 7 you choose between surrendering the car, redeeming it and reaffirming the loan. In Chapter 13 the loan can be paid through the plan.4 5
Does filing stop a repossession?
The automatic stay covers attempts to repossess property while it is in effect. A lender can ask the court for relief from the stay.6
Can the lender take the car after my discharge?
A valid lien that was not removed in the case stays in place after it, so a secured creditor may still enforce the lien to recover the car.3
Why does the date I bought the car matter?
In Chapter 13, for a loan used to buy a car for personal use within 910 days before filing, the plan generally cannot reduce the secured amount to the car's current value.10
Can I change my mind after reaffirming?
Yes, within a window. You can cancel at any time before the discharge or within 60 days after the agreement is filed with the court, whichever is later.9
Sources
Official courts & government references- Glossary of Legal Terms (uscourts.gov)
- Chapter 7 - Bankruptcy Basics
- Discharge in Bankruptcy - Bankruptcy Basics (uscourts.gov)
- 11 U.S. Code § 521(a)(2) (Cornell LII)
- Chapter 13 - Bankruptcy Basics
- 11 U.S. Code § 362(a)(3), (a)(6) (Cornell LII)
- 11 U.S. Code § 722 (Cornell LII)
- 11 U.S. Code § 506(a) (Cornell LII)
- 11 U.S. Code § 524(c)(1), (c)(4) (Cornell LII)
- 11 U.S. Code § 1325(a), unnumbered paragraph (Cornell LII)
- 11 U.S. Code § 1326(a)(1) (Cornell LII)
- 28 U.S. Code § 1930 (Cornell LII)
- Bankruptcy Court Miscellaneous Fee Schedule (uscourts.gov)