Filing for Chapter 7 bankruptcy in Colorado can provide much-needed financial relief, but many individuals worry about what will happen to their assets—particularly their car. At the Law Offices of Andrew F. McKenna, P.C., we understand how important it is to retain reliable transportation. The good news is that keeping your vehicle during Chapter 7 bankruptcy is possible under the right circumstances.

Understanding Chapter 7 Bankruptcy and Asset Liquidation

Chapter 7 bankruptcy is often referred to as "liquidation bankruptcy" because non-exempt assets may be sold to repay creditors. However, not all assets are liquidated—bankruptcy exemptions allow individuals to protect certain necessary property, including a vehicle.

Colorado’s Motor Vehicle Exemption

Colorado law provides a motor vehicle exemption that allows you to protect up to $15,000 in equity in your car ($25,000 if you are elderly or disabled). Equity is calculated by subtracting the amount you owe on the car loan from the car’s fair market value. If your car’s equity falls within the exemption limit, you can keep your vehicle.

What If Your Car Exceeds the Exemption?

If the equity in your vehicle exceeds the exemption amount, the bankruptcy trustee may sell the car, pay off your auto loan (if applicable), and distribute the remaining funds to creditors. However, options may be available to help you retain ownership, such as:

• Negotiating with the trustee to pay off the non-exempt equity.
• Reaffirming your loan by continuing regular payments.
• Redeeming the car by paying its fair market value in a lump sum.

What Happens to a Car Loan in Chapter 7?

If your car is financed, you will need to decide whether to:

• Continue making payments and reaffirm the loan with the lender.
• Surrender the vehicle if the loan is too burdensome.
• Redeem the vehicle by paying its current market value.

Missing payments after reaffirmation could result in repossession.

Discuss Your Options with a Colorado Bankruptcy Attorney

Navigating Chapter 7 bankruptcy can be complex, but legal guidance can help protect your assets. At the Law Offices of Andrew F. McKenna, P.C., we assist Colorado residents in understanding their rights and exploring solutions that allow them to move forward financially while keeping essential property like a car.