Can You Keep Your Car If You File Bankruptcy in Illinois?

 Posted on April 15, 2026 in Bankruptcy

You can often keep your car when you file for bankruptcy in Illinois. However, this depends on which type of bankruptcy you file, how much equity you have in the vehicle, and whether you are current on your payments. It’s common to assume bankruptcy means losing everything you own, but that isn’t really how it works.

The bankruptcy system includes protections that allow you to keep certain property, including your car, under the right circumstances. If you are considering bankruptcy in 2026 and worried about your vehicle, our Kane County, IL bankruptcy lawyer can walk you through your options.

How Do Bankruptcy Exemptions Work in Illinois?

When you file for bankruptcy, a trustee is appointed to review your assets. The trustee looks at what you own and what can be used to pay your creditors. Exemptions are the legal protections that shield certain property from that process. If an asset is fully covered by an exemption, the trustee cannot take it.

Illinois has its own set of bankruptcy exemptions that apply when you file in this state. One of those exemptions covers motor vehicles. Under 735 ILCS 5/12-1001, Illinois allows you to protect up to $2,400 in equity using a general exemption that can be applied to a motor vehicle. If you are disabled, that amount increases to $4,000.

Equity is the difference between what your car is worth and what you still owe on it. If your car is worth $8,000 and you owe $6,000, you have $2,000 in equity. That falls within Illinois's exemption limit. If your equity is above the exemption limit, the trustee may have the right to sell the vehicle to pay creditors.

What Are Your Options for a Financed Car in Chapter 7 Bankruptcy?

If you have a car loan and want to keep the vehicle in a Chapter 7 case, you have a few paths available. The first is a reaffirmation agreement. This is a new legal agreement you sign with the lender that says you will continue to be personally responsible for the car loan even after bankruptcy. In return, you keep the car and keep making payments. If you later default on the loan, the lender can pursue you for the balance.

The second option is redemption. This allows you to pay the lender the current market value of the car in one lump sum payment, regardless of how much you still owe on the loan. If your car is worth $5,000 but you owe $10,000, you could potentially keep it by paying just $5,000. The challenge is coming up with that lump sum, though some lenders specialize in financing redemption payments for people in bankruptcy.

The third option is surrender. If you no longer want the car or cannot afford the payments, you can give it back to the lender. The remaining loan balance is discharged along with your other unsecured debts.

What Happens to Your Car in Chapter 13 Bankruptcy?

Chapter 13 bankruptcy works differently. Instead of liquidating assets, you create a three to five-year repayment plan that pays back some or all of your debts. Because you are paying creditors through the plan, there is generally no need for the trustee to sell your property.

In Chapter 13, you can usually keep your car as long as your repayment plan accounts for any equity above the exemption limit and you continue making your regular car payments or include the loan in the plan. Chapter 13 can also be a powerful tool if you are behind on car payments. You can catch up on missed payments through your repayment plan and keep the vehicle, as long as the plan is approved and you stick to it.

Chapter 13 also offers something called a cramdown in certain situations. If you have had your car loan for more than 910 days before filing, you may be able to reduce the loan balance to the current market value of the car and lower your interest rate. This can significantly reduce what you owe on the vehicle and make it more affordable to keep.

Schedule a Free Consultation With Our Geneva, IL Bankruptcy Attorney

Attorney Deanna Aguinaga Walker brings more than 25 years of legal experience to every bankruptcy case she handles. Having her own law practice gives her the flexibility to become personally involved with each of her clients, and she genuinely values the chance to help people through a wide range of legal challenges.

You will not feel like just another case file when you work with her. Call DLAW, PC at 331-222-7978 today to speak with a Kane County, IL bankruptcy lawyer and find out what you can keep when you file.