It may be possible for you to keep your car when you file a Chapter 7 bankruptcy in Chicago, but that all depends on how much value your vehicle holds. Illinois, unlike other states, doesn’t allow you to use federal bankruptcy exemptions when filing, so you can only exempt the state maximum for a car.
Your Car in Chapter 7 Bankruptcy
Some states allow you to choose whether you want to use the state or federal bankruptcy exemption limits when you file bankruptcy, but Illinois doesn’t. In Chicago, you have to use the state bankruptcy exemption limits, which top out at $2,400 for a vehicle.
If there’s more equity in your car than this, you may be able to use the wildcard exemption, which is $4,000 in the Windy City. If necessary, you can combine these exemptions for a higher maximum exemption amount.
When you file a Chapter 7 bankruptcy, any non-exempt assets that aren’t essential for day-to-day life – including your vehicle if it can’t be exempted – are sold by your bankruptcy trustee. This is done in order to repay your creditors at least part of what they’re owed.
The Chapter 7 bankruptcy process is short, typically lasting only four to six months. Once complete, any remaining debts (other than items like student loans) are wiped away in the discharge.
If you fail to correctly file your paperwork, decide not to complete your bankruptcy, or fail to comply with any other requirements of your bankruptcy as outlined by the state of Illinois, your bankruptcy is dismissed instead of discharged.
These words may sound similar, but they're polar opposites in a Chapter 7 bankruptcy. A discharge means the bankruptcy was successfully completed. A dismissal means that your bankruptcy wasn't successfully completed and was instead thrown out by the court. Depending on the reason, a dismissal could prevent you from filing a Chapter 7 ever again.
Keeping Your Vehicle in Chapter 7 Bankruptcy
Knowing that you have to file bankruptcy, you may be concerned that you have to give up your car. It may not have to come to this if you can either reaffirm your loan or redeem your vehicle.
If you choose to reaffirm your loan rather than include it in your bankruptcy, you’re agreeing to continue making payments, and you continue to be responsible for the loan after other debts have been wiped away.
You have to prove that you can make your payments, and they can’t be late, even after the bankruptcy is dismissed. If you can’t prove you can do this, the court can deny your reaffirmation, and you could lose your car to repossession.
Your other option is to redeem the vehicle. This means making one lump sum payment to your lender for the value of the car, which can be difficult to come up with.
However, you're only required to pay the lender the current market value of the vehicle, not your loan balance. This can be especially appealing for someone with negative equity. If you and your lender can't agree about the current value of the car, it’s decided by the court.
If neither of these options works for you, you can also voluntarily surrender the vehicle. If you return the car to the creditor, it wipes out the debt, since you’re only responsible for the vehicle’s value, not the loan balance.
Losing Your Car during Bankruptcy
If you were unable to spare your car from the clutches of bankruptcy, the good news is that you can still purchase another vehicle once the Chapter 7 is discharged.
Generally, you aren’t able to finance a car while you’re in Chapter 7 due to the short time frame. Lenders also don’t want to risk an auto loan being included in the bankruptcy.
Even a vehicle you just acquired could be included in your Chapter 7, and the lender would lose the difference between the car's value and what's owed on the loan when the debt is wiped out in the discharge.
Therefore, you typically have to wait until your bankruptcy is discharged before you can get approved for an auto loan.
Need a Vehicle Post-Bankruptcy?
If you’re thinking about filing a Chapter 7 bankruptcy in Chicago or the state of Illinois but are worried about losing your vehicle, have no fear. An automatic stay goes into effect as soon as you file, which keeps you from losing your car right away.
Now that you know what it takes to keep your vehicle, you can plan accordingly. If you weren’t able to keep your car, and you now need a post-bankruptcy auto loan, Auto Credit Express wants to help.
We work with a nationwide network of special finance dealerships all across Chicago, the state of Illinois, and the rest of the country. Let us connect you with a dealer near you. Simply fill out our car loan request form to get started right now!