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Is an automobile exempt from repossession in Chapter 7?

Pennsylvania residents who are considering filing Chapter 7 bankruptcy may be worried that they will not be able to keep their car or truck once they file. There are steps a debtor can take to protect a vehicle in bankruptcy. Which strategy to choose will depend on the value of the vehicle and whether the debtor has a loan on it.

Both Pennsylvania and federal law exempt certain assets from liquidation in Chapter 7. A Pennsylvania debtor has the option of choosing the state or federal exemptions. If the debtor is concerned about keeping a vehicle in which he or she has significant equity, the federal exemptions are more advantageous. The federal exemptions include one for a vehicle, not to exceed $3,775 in value. The Pennsylvania exemptions do not include a specific vehicle exemption, although a debtor can protect up to $300 in equity in the vehicle through the state's "wildcard" exemption.

If there is a loan on the vehicle, the lender has the option, subject to court permission, to repossess the vehicle during the bankruptcy, assuming the debtor does not continue making payments. The debtor can protect the car, however, by reaffirming the debt. In a reaffirmation, the debtor agrees with the lender not to include the car loan in the Chapter 7 discharge, and agrees to continue making payments on the loan. The lender agrees not to repossess the car if the debtor continues making payments.

The reaffirmation must be submitted to the bankruptcy court for approval. The debtor must show the court that he or she has enough income to continue making payments on the car. The court can withhold approval of the agreement if the debtor's income is not sufficient.

Source: uscourts.gov, "Chapter 7 - Bankruptcy Basics," accessed March 6, 2017

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