Can You Keep Your Car in Texas Bankruptcy? A Guide

When facing financial challenges, many Texans consider bankruptcy as a way to relieve their debt burden. However, a common concern is whether they can keep their car during the bankruptcy process. This guide will help you understand the rules, exemptions, and options available for vehicle retention in Texas bankruptcy.

In Texas, bankruptcy law provides options for individuals struggling with debt. There are two primary types of bankruptcy for individuals: Chapter 7 and Chapter 13. Each has its own implications regarding the retention of assets, including vehicles.

Chapter 7 Bankruptcy and Vehicle Retention

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," involves the sale of non-exempt assets to pay creditors. However, Texas has generous exemptions that can allow you to keep your car, depending on its value.

In Texas, the vehicle exemption allows individuals to protect up to $60,000 in equity for a single person or $120,000 for a family. This means if your car's value is less than this amount, you can retain it. It's crucial to note that equity is determined by the car's market value minus any outstanding loans against it.

If your car is worth more than the exemption limit, you may still keep it through a process called "redeeming" the car, which involves paying the creditor the value of the car to gain full ownership.

Chapter 13 Bankruptcy and Vehicle Retention

Chapter 13 bankruptcy, or "reorganization bankruptcy," allows individuals to create a repayment plan to pay off their debts over three to five years. One of the key advantages of Chapter 13 is that it allows you to keep your car without worrying about the liquidation process.

Under Chapter 13, you can catch up on past-due payments through your repayment plan while maintaining possession of your vehicle. Additionally, if your auto loan is upside down (meaning you owe more than the car is worth), you could potentially reduce the principal balance to the current market value of the car in some cases.

Considerations for Vehicle Loans

Regardless of the bankruptcy chapter you choose, understanding the status of your car loan is essential. If you are current with your loan payments, maintaining those payments is crucial to keeping your vehicle. Both bankruptcy processes may allow you to reaffirm the debt, which means you agree to continue paying the loan after bankruptcy to keep the car.

However, if you are behind on your payments, Chapter 13 may offer a better solution to save your car and get back on track financially.

Conclusion

In Texas, you can generally keep your car during bankruptcy by utilizing state exemptions and considering your repayment options. Whether you choose Chapter 7 or Chapter 13, understanding how these processes affect vehicle retention is essential. Always consult with a qualified bankruptcy attorney to explore your specific situation and develop the best plan to protect your assets while overcoming financial challenges.