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Do I Have To Give Up My Car In Bankruptcy?

For many who file bankruptcy in Arizona, what happens to their cars and their homes are the two biggest concerns. Debtors are concerned with having a home in which to live and a vehicle to drive back and forth to work. Without either of these things, it would be very difficult for the debtor to recover from the bankruptcy and to live a normal life. What happens to your vehicle when you file bankruptcy depends on several factors, including the type of bankruptcy you choose and how much equity you have in the car.

The Exemption and Equity Equation

Arizona allows debtors to exempt up to $5,000 in equity in a single vehicle. If you are disabled, your exemption is automatically doubled to $10,000. A married couple can choose to exempt $10,000 in equity in one vehicle or $5,000 equity in each of two vehicles. Equity is calculated by taking the book value of your car and comparing it to what is owed the creditor. If your car is worth $10,000 and you owe the loan company $2,000, you have $8,000 equity in the vehicle. If the vehicle is worth significantly more than you owe, you may find that the creditor asks the court to sell the vehicle in order to pay off the debt.


If you file Chapter 7 or Chapter 13 bankruptcy and you owe significantly more on your vehicle than the exemption amount, you may have to reaffirm the debt if you want to keep the car. This means that you agree to continue making the payments and to surrender the car under the original terms of the promissory note if you do not make the payments as promised.

Should I Surrender the Car?

Unless you need the car to get to work and have no options to get a cheaper vehicle, surrendering the vehicle may make sense. Bankruptcy is your chance to discharge the amount not covered by the car’s value, known as a “residual.” If you reaffirm the debt, you could be obligated to pay the residual if the car is eventually repossessed. If you want to keep the car, explore the option of “redemption.” This means that you purchase the car outright for the amount it is worth rather than what is owed. The problem with this option is that you must come up with the cash in one lump sum. Finally, you could reaffirm the loan. This means that you agree to make the payments in full and on time. Find out more about how you may be able to keep your car in bankruptcy from the attorneys at Oswalt Law Group in Phoenix.

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