Can I Keep My Car During Bankruptcy?

 Posted on February 16, 2026 in Bankruptcy

Filing for bankruptcy can be a daunting process, and one of the most common concerns people have is whether they can keep their car. The answer to this question depends on several factors, including the type of bankruptcy you file, the value of your car, and your ability to make payments. 

If you are thinking about filing for bankruptcy in 2026, our McHenry County bankruptcy lawyer can help you understand whether it’s possible to keep your car. 

If I File Bankruptcy, Can I Keep My Car?

The short answer is yes; it is often possible to keep your car when filing for bankruptcy in Illinois. However, the specific circumstances of your case will decide the best course of action. In a Chapter 7 bankruptcy, you may be able to keep your car if its value falls within the allowed exemption amount. In a Chapter 13 bankruptcy, you can keep your car by including it in your repayment plan and making payments.

Understanding Illinois Car Exemptions in Chapter 7 Bankruptcy

In 2026, people filing for Chapter 7 bankruptcy in Illinois can exempt up to $3,600 in equity for a single vehicle per 735 ILCS 5/12-1001. If you own a car worth less than this amount, or if your equity in the car is less than $3,600, you can definitely keep your car. If the equity in your car exceeds the exemption amount, the trustee may sell the car to pay off your creditors, and you will receive the $3,600.

Keeping Your Car in Chapter 13 Bankruptcy

If you file for Chapter 13 bankruptcy in Illinois, you can keep your car by including it in your repayment plan. Under this plan, you make monthly payments to the bankruptcy trustee, who will distribute the funds to your creditors. 

You can keep your car as long as you keep making the required payments. In some cases, you may even be able to reduce your car payments or the total amount you owe on your vehicle through a process called a "cramdown."

Reaffirming Your Car Loan

Another option for keeping your car during bankruptcy is called "reaffirming" your car loan. By reaffirming a debt, you commit to making payments on the loan as if bankruptcy never happened. This can be a good option if you are current on your car payments and can afford to continue making them. 

However, it is important to carefully consider the long-term consequences of reaffirming a debt. You keep all responsibility for a loan you reaffirm after your bankruptcy case is closed. 

What Is a Cramdown and How Can It Help You Keep Your Car?

A cramdown is a powerful tool available in Chapter 13 bankruptcy that can make keeping your car more affordable. Under 11 U.S.C. Section 506, you may be able to reduce the amount you owe on your car loan to match the vehicle's actual current value. 

For example, if you owe $15,000 on a car that is only worth $10,000, a cramdown can reduce your loan balance to $10,000. The remaining $5,000 becomes unsecured debt, which is typically paid at a much lower rate or not at all through your Chapter 13 repayment plan.

There are restrictions on when you can use a cramdown for a vehicle. Under federal bankruptcy law, specifically the 910-day rule, you can only cramdown a car loan if you bought the vehicle more than 910 days before filing for bankruptcy in 2026. This works out to about two and a half years. If you bought your car more recently than that, you must pay the full loan amount to keep it.

What Happens If You Are Behind on Car Payments When You File Bankruptcy?

If you are already behind on your car payments when you file for bankruptcy, the automatic stay can provide immediate relief. The automatic stay is a court order that goes into effect the moment you file your bankruptcy petition. This order stops all collection activity, including car repossession. If your lender was going to repossess your vehicle, the automatic stay prevents the lender from taking your car while your bankruptcy case is pending.

In a Chapter 13 bankruptcy, you can catch up on missed car payments through your repayment plan. The past-due amount becomes part of your plan, and you pay it back over three to five years while also making your current monthly car payment. This gives you time to get back on track without losing your car.

In a Chapter 7 bankruptcy, catching up on missed payments is more difficult because Chapter 7 does not include a repayment plan. If you are behind on payments, you will need to bring the loan current quickly or negotiate with the lender. Some lenders may be willing to work out a payment arrangement, but others may ask the bankruptcy court to lift the automatic stay so the lender can repossess the vehicle.

Contact a McHenry County, IL Bankruptcy Attorney

Keeping your car during bankruptcy is possible, but it depends on your specific circumstances. You need to make sure you understand your options, and having a Kane County, IL bankruptcy lawyer is the best place to start. Contact Thomas Law Office at 847-426-7990 to find out how we can help you.