Yes, you can often keep an “underwater” car in Chapter 7 bankruptcy, depending on a few factors. If you still want the car, the bankruptcy code gives you several options—but each comes with pros and cons.
🚗 What Does It Mean That the Car Is “Underwater”?
Your car is “underwater” (aka upside-down) if:
You owe more on the loan than the car is worth.
Example: You owe $14,000 on a car worth only $9,000.
In this case, the loan is secured by the vehicle, and Chapter 7 deals with secured debts in a unique way.
✅ Option 1: Keep the Car and Reaffirm the Loan
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Reaffirmation means you agree in writing to keep making the car payments after bankruptcy.
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You remain personally liable for the loan—even after discharge.
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The lender must agree, and the court must approve the reaffirmation.
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Best when: You need the car, payments are affordable, and the car is in good shape.
⚠️ Risk: If you default later, the lender can repossess the car and sue you for the balance—even though you filed bankruptcy.
🔁 Option 2: Redeem the Car for Its Current Value
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You pay the fair market value of the car in one lump sum.
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Example: Pay $9,000 to wipe out the full $14,000 debt.
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The remaining $5,000 is discharged.
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Requires court approval.
✅ Best when: The car is worth much less than the loan, and you have access to cash (or can get a redemption loan).
⚠️ Downside: You must pay the full amount immediately—no payment plans.
❌ Option 3: Surrender the Car and Walk Away
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You voluntarily give the car back to the lender.
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Any deficiency balance is discharged.
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You owe nothing more, and you’re no longer stuck with a bad loan.
✅ Best when: The car needs repairs, has high payments, or you’re ready to get out of the loan.
⚠️ You’ll need another way to get around.
📋 Other Important Notes
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Florida allows a $1,000 vehicle exemption (or more if you apply the wildcard exemption).
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If the trustee sees no equity, they won’t take your car—especially if the loan balance exceeds the value.
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Some lenders let you keep the car and just keep paying (called “retain and pay”) even without a reaffirmation—but this depends on the lender.
🧠 Bottom Line
Yes, you can keep an underwater car in Chapter 7—if you:
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Stay current on payments
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Reaffirm or redeem the loan, or
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Have a lender that doesn’t require reaffirmation
But think carefully: Do you want to keep overpaying for a car that’s worth much less than the loan? Sometimes surrendering it is the smarter financial move.
Let me know your car’s value, loan balance, and payment amount, and I can help you figure out which option is best for your case.
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