How to File Bankruptcy and Keep Your Car in Michigan

When you rely on your vehicle for employment, family, and personal reasons, it’s hard to imagine the extensive consequences if you lose it in bankruptcy. To avoid or mitigate the harsh consequences, you need to know how to file bankruptcy and keep your car in Michigan.

To file bankruptcy and keep your car in Michigan, you must use exemptions to protect its equity. In Chapter 7, stay within exemption limits or reaffirm the loan. In Chapter 13, include payments in a repayment plan. Choosing the right bankruptcy type ensures you can keep your vehicle.

As a Michigan bankruptcy attorney who’s served the community for more than two decades, I’ve helped numerous clients protect their vehicles and secure favorable results through the process. Below, I’ll explain classes of debts, how exemptions shield your car, and the general process for bankruptcy.

How Does Bankruptcy Work in Michigan?

Bankruptcy in Michigan allows individuals to eliminate or restructure debt under federal law. The two most common types are Chapter 7 and Chapter 13. Chapter 7 liquidates non-exempt assets to repay creditors, while Chapter 13 creates a repayment plan. Michigan residents must meet income and asset requirements to qualify.

Bankruptcy provides relief from debt collection efforts through the automatic stay. However, asset protection depends on exemption laws and the type of bankruptcy petition filed.

What are Secured and Unsecured Debts?

There are two classes of debt in a Chapter 7 or Chapter 13 bankruptcy case:

Secured debts are backed by collateral, such as auto loans or mortgages. If the debtor fails to pay, creditors can repossess the asset.
Unsecured debts, including credit cards and medical bills, have no collateral and are discharged in bankruptcy more easily.

Keeping a car in bankruptcy depends on whether the loan is secured. If payments are current and exemptions apply, debtors may keep their vehicle. Otherwise, restructuring the loan may be necessary.

Do I Qualify for Federal or Michigan Bankruptcy Exemptions?

Michigan offers bankruptcy filers the choice between federal exemptions and exemptions provided by state law. However, you cannot mix and match federal and state exemptions. You must choose either the federal or the state exemptions for the entirety of your case.

The Michigan motor vehicle exemption protects up to $4,250 in equity for a car.
A filer who is disabled or over age 65 can protect up to $9,525 under the Michigan exemptions.
The federal exemption covers up to $4,450 in equity.

Choosing the right exemption set is crucial to keeping a vehicle. If the car’s equity exceeds exemption limits, Chapter 13 may be a better option to prevent repossession.

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Will I Lose My Car in a Chapter 7 Bankruptcy?

Chapter 7 bankruptcy may result in the loss of a vehicle if its equity exceeds Michigan or federal exemption limits. If the car’s current fair market value is more than the protected amount, the bankruptcy trustee may sell it to repay creditors.

Still, filers can reaffirm the auto loan to continue making payments and retain ownership. If the loan is not reaffirmed or paid off, the lender may repossess the vehicle. Staying current on payments increases the chances of keeping a car.

What Type of Bankruptcy is Best for Keeping My Car?

For Michigan residents who want to keep their car, Chapter 13 bankruptcy is often the best choice. This type of bankruptcy allows filers to restructure debt and catch up on missed car payments. A Chapter 13 case takes just over three to five years because of the debt repayment plan, but the matter remains on your credit report for up to 7 years.

Chapter 7 may work if the car’s equity is within exemption limits and the filer remains current on loan payments. However, those behind on payments or with high equity may face repossession. Plus, a Chapter 7 case affects your credit score for up to 10 years. Understanding eligibility and exemption limits is key to selecting the right bankruptcy type.

How Can I Protect My Car in a Chapter 13 Bankruptcy Case?

Chapter 13 allows debtors to keep their car by restructuring payments through a court-approved plan. This repayment plan lasts three to five years and prevents repossession. Car loans may be reduced through a cramdown if the loan balance exceeds the car’s value.

The automatic stay also prevents repossession while the case is pending. By including auto loan payments in the Chapter 13 plan, Michigan residents can maintain vehicle ownership while managing their overall debt.

What is the Automatic Stay in Michigan Bankruptcy?

The bankruptcy automatic stay is a legal protection that stops creditors from collecting debts after a bankruptcy filing. This includes halting:

Repossessions
Wage garnishments
Collection lawsuits

For Michigan residents at risk of losing their car, the automatic stay provides immediate relief. However, lenders may request a stay lift to continue repossession. Chapter 13 offers long-term protection by restructuring payments, while Chapter 7’s stay is temporary unless the filer can reaffirm the loan or use exemptions.

What are Other Options for Keeping My Car?

If bankruptcy is not the right solution, Michigan residents have alternative options to keep their car. To prevent repossession, you might consider:

Loan modification
Refinancing
Negotiating directly with the lender

Some lenders offer hardship programs to lower payments temporarily. Selling the car and purchasing a more affordable vehicle may also be an option. Exploring all available solutions before filing bankruptcy leads to the best financial outcome.

Should I Surrender My Vehicle in Bankruptcy?

Surrendering a vehicle may be a strategic choice for Michigan residents struggling with unaffordable auto loans. If payments are too high or the car is worth significantly less than the loan balance, giving up the vehicle may provide financial relief.

Chapter 7 allows debtors to surrender a car and discharge the loan balance, avoiding further payments.
Chapter 13 filers may also surrender a vehicle and adjust their repayment plan.

Considering long-term affordability is essential before making this decision.

How Can a Bankruptcy Attorney Help with My Case?

A Michigan bankruptcy attorney provides valuable guidance for those seeking to keep their car during bankruptcy. Attorneys assess eligibility for Chapter 7 or Chapter 13, determine the best exemption set, and negotiate with creditors. They also help filers understand legal protections, including the automatic stay and debt repayment options.

Consulting a bankruptcy lawyer enables a well-planned approach, maximizing the chances of keeping a vehicle while achieving financial relief.

Discuss Your Case with a Knowledgeable Bankruptcy Lawyer in Michigan

While it’s possible to file bankruptcy and keep your car, trust an experienced Michigan bankruptcy lawyer for assistance. Bankruptcy laws are complex, and the right legal strategy can mean the difference between protecting your vehicle and facing repossession. Kostopoulos Bankruptcy Law understands the challenges you’re facing and will guide you through the process, so you can take full advantage of available exemptions and repayment options.

Call 877-969-7482 today for a free, no-obligation consultation and get the legal support you need to secure your financial future.

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FAQs About Filing Bankruptcy and Keeping Your Car in Michigan

Can I declare bankruptcy and keep my car?

Yes, you can file for bankruptcy and keep your car in Michigan under certain conditions. If you file for Chapter 7, your car’s equity must fall within the Michigan or federal motor vehicle exemption limits, and you must stay current on payments if you have a loan. In Chapter 13, you can include missed car payments in a repayment plan to prevent repossession. Reaffirming the loan or redeeming the vehicle may also allow you to keep it.

What assets are exempt from Chapter 7 in Michigan?

In a Michigan Chapter 7 bankruptcy, certain assets are protected from liquidation under exemption laws. Exempt assets include up to $4,250 in equity for a vehicle ($9,525 for elderly or disabled individuals), homestead equity up to $46,125, personal property, tools of the trade, retirement accounts, and some wages. Federal exemptions are also an option, offering different limits. Choosing the right exemption set is crucial to protecting property, including your car, from being sold by the bankruptcy trustee.

What are the risks of keeping my car during bankruptcy?

The biggest risk of keeping a car during bankruptcy is repossession if payments are not current. In Chapter 7, if the car's equity exceeds exemption limits or the filer cannot afford loan payments, the lender or trustee may take the vehicle. In Chapter 13, failing to make plan payments can result in repossession. Additionally, reaffirming a car loan in Chapter 7 means personal liability for the debt remains, even if financial struggles continue.

Is it worth it to fight to keep my car in bankruptcy?

Yes, keeping a car in bankruptcy is often worth the effort if it is necessary for work, family obligations, or daily transportation. If the car loan is affordable and its equity falls within exemption limits, retaining the vehicle can provide long-term stability. However, if payments are unaffordable, surrendering the car and discharging the debt may be a better financial decision. Evaluating your overall debt situation and repayment ability is essential before deciding.