In bankruptcy, a number of different scenarios can play out regarding your car. If you are not making the car payments, you will be able to keep it if the value is under your state’s vehicle exemption amount. If you are making the car payments, it is not so straightforward. You will have to decide whether you want to surrender the vehicle or keep it by continuing to make the payments.
You let the bankruptcy court know what you want to do with your car with the Statement of Intention (SOI) form. You also mail the SOI to your vehicle lender. If your car is a lease, you can reject the lease or assume it and keep your vehicle. If you want to give up your car, you state your intention to do so on the SOI and you are no longer liable for the debt after your bankruptcy.
If you decide to keep your car, it is best to continue making the payments. You can either pay the lender a lump sum to buy the car at its current value (redemption), or enter into a new contract (reaffirmation) and keep the car essentially under the original terms of the loan. Your lender may let you keep the car without a reaffirmation agreement as long as you continue making payments (ride-through option), although many courts have found that the 2005 amendments to the Bankruptcy Code have eliminated the ride-through option.