As a bankruptcy attorney, I field tons of questions about cars and understandably so. After all, it doesn’t do much good getting a fresh start financially if you can’t drive to work. So let’s tackle the questions once and for all on National Bankruptcy Forum. Can a consumer who files for bankruptcy keep their car through the process?

In most cases the answer is yes, however, it depends on (1) whether you can afford the payments and (2) on the value of the car. Let’s address each issue seperately. Can you afford your car? In my jurisdiction of North Carolina, consumers who file bankruptcy and wish to keep their car must execute a reaffirmation agreement with their lender. By filing bankruptcy, you erase your personal obligation to pay debt. When a debtor reaffirms debt, she is agreeing to continue being obligated for the debt, as opposed to discharging it as part of the bankruptcy. As a condition of keeping the car, your lender will make you reaffirm the obligation to make your car payments. After you have executed the reaffirmation agreement with the help of your attorney, you will continue to make car payments and use your car exactly as you did before bankruptcy. However, reaffirmation agreements are not to be entered into lightly. The Court will not approve your reaffirmation of your car loan if to do so would constitute an undue burden. Therefore, the consumer must be able to demonstrate that she can continue to make hercar payments before the Bankruptcy Court will approve the reaffirmation. The lesson to be learned here is that if you can afford to make your car payments, you have passed the first hurdle to keeping your car through the bankruptcy process.

How much is your car worth vs. How much do you currently owe? One of the common misconceptions about bankruptcy is that you will lose all of your property if you file. This is simply not the case. Many people who file bankruptcy retain all of their property through the process through the use of the exemption laws. However, it is important to meet with a knowledgable bankruptcy attorney to discuss your state’s exemption laws. In North Carolina, a debtor can protect up to $3,500 of equity in a car using the automobile exemption. Additional equity can be protected by using the state wildcard exemption. If you owe more than your car is worth you need not worry about exemptions since you have no equity in your car. The bankruptcy trustee will only seek to liquidate property that has equity which exceeds the amount of your allowed exemption. Keep in mind also that you would likely have the option of paying the Trustee the amount of the non-exempt equity in order to retain your car. To summarize, if you can afford to continue to make your payments and do not have non-exempt equity in your car, you will be able to keep it through the bankruptcy process. If you have fallen behind on car payments and need time to get caught up, chapter 13 bankruptcy may be an option.