Do I Have to Include My House and Car in Chapter 13 Bankruptcy?

Whether a debtor files Chapter 7 or Chapter 13 bankruptcy, all income, debts and assets must be declared. A debtor who does not list all debts, including home mortgage and car loan, will be in violation of fundamental requirements for filing bankruptcy.

One of the first questions people have when they’re thinking about bankruptcy is whether they can keep their house and car. For most people, these are the most valuable things they own, and they don’t want to lose them if at all possible. To get a better idea of what happens with homes and vehicles in bankruptcy, we surveyed our readers across the United States about their experiences.

Your House in Chapter 7 Bankruptcy

If you file for Chapter 7 bankruptcy—the kind that gets rid of debt most quickly—you can keep your house under two conditions: You’re current with your mortgage payments when you file (or you’ve recently gotten current through a loan modification), and the laws in your state allow you to protect (“exempt”) all of the equity you have in the property. (For details, see our article on keeping a house or car in Chapter 7 bankruptcy.) By giving you relief from other kinds of debts, like credit card or medical bills, bankruptcy can free up money to help you keep up with your mortgage. Most of our readers had this experience: 68% of those who went through Chapter 7 bankruptcy were able to keep their home.

If you’ve already fallen behind on your mortgage payments when you file for Chapter 7 bankruptcy, you’re likely to lose your house. Filing for bankruptcy lets you stay in your home another month or two, but ultimately, the bank will foreclose on the property. But if the foreclosure sale price is less than what you owe on the mortgage, your remaining mortgage debt can be discharged in bankruptcy. (And you may save money on taxes. For more on this, see our article on Chapter 7 bankruptcy and foreclosure.) Our readers who lost their houses reported an average discharge of $130,000 in mortgage debt after filing Chapter 7.

Your House in Chapter 13 Bankruptcy

When you’re behind on your mortgage payments but want to keep your home, Chapter 13 bankruptcy might give you the time you need to catch up. Under this type of bankruptcy, the court approves a plan for you to repay the past-due mortgage amounts over three to five years, while continuing to make your current mortgage payments. As long you keep up with both of those payments, your lender can’t foreclose on the house.

How often do Chapter 13 filers succeed in completing their repayment plans? Many of the readers we surveyed were still making their plan payments, but of the others, nearly half (48%) had their case dismissed before they were able to complete the plan, which usually happens when a debtor can’t keep up with the payments. It was likely that these readers didn’t have enough income to cover their living expenses (including their current mortgage payments) as well as the monthly plan payments. Bottom line: Despite good intentions, not all Chapter 13 bankruptcy filers are able to keep their houses.

Your Car in Chapter 7 Bankruptcy

As with a house, you can keep your car in Chapter 7 bankruptcy if you’re current with your loan payments (or the car is paid off), and your state’s laws allow you to exempt your equity in the vehicle. Not surprising, the vast majority of our readers (87%) who filed under Chapter 7 were able to keep their cars.

Many lenders will allow you simply to keep making payments on your auto loan after your file for bankruptcy, but they potentially could repossess the car (even if you don’t fall behind on those payments) unless you “reaffirm” the debt by agreeing to a new contract. Still, less than two in ten (17%) of our readers told us they reaffirmed their auto loan debt.

If the car is worth less than the balance on your loan, you can ask the court to let you “redeem” it by paying a lump sum for its actual value—that is, if you can somehow come up with the money. Otherwise, you can choose to give up (or “surrender”) your car, which means that your debt will be wiped out in the bankruptcy. Readers who chose this option discharged an average of $13,500 in debt for their auto loans.

Your Car in Chapter 13 Bankruptcy

Readers who filed for Chapter 13 bankruptcy were also very likely to keep their cars. If you’re behind on your vehicle loan, you can use a Chapter 13 plan to catch up with your overdue payments (as with mortgage debt), but you also have a couple of other options that don’t apply to house loans. In Chapter 13, you might be able to stretch out the car payments over a longer period. Or, if the car loan is old enough, you might even be able to lower the balance on the principal and your interest rate. (For details, see our article on paying off past-due secured debts in Chapter 13.)