Can I Keep My Car and Home If I File for Bankruptcy?

One of the most common fears people have when considering bankruptcy is the belief that they will automatically lose their car, their home, or both. For many Californians, these concerns are especially stressful because transportation and housing are essential to daily life. The reality is that bankruptcy does not automatically mean losing your property. In many cases, people can keep their vehicles and homes while still getting relief from overwhelming debt.

Understanding how bankruptcy works in California and what protections may be available can help you make informed decisions with confidence. Speaking with a Los Angeles bankruptcy lawyer can also clarify how these rules apply to your specific situation.

Why Asset Loss Is a Common Fear

Bankruptcy is often misunderstood as a process where everything you own is taken away. This misconception usually comes from confusion between different types of bankruptcy and a lack of understanding about exemption laws. In reality, bankruptcy is designed to balance creditor rights with a debtor’s ability to maintain basic stability. Federal bankruptcy law works alongside California exemption laws to protect certain property that people need to live and work.

Most individuals who file for bankruptcy do not lose their primary vehicle or their home. Whether you can keep these assets depends on several factors, including the chapter you file under, the amount of equity you have, and how California exemptions apply to your property.

The Difference Between Chapter 7 and Chapter 13

The type of bankruptcy you file plays a major role in what happens to your assets. In Chapter 7 bankruptcy, certain non-exempt property may be sold to pay creditors, but exempt assets are protected. If your car and home fall within California’s exemption limits, you can typically keep them.

Chapter 13 bankruptcy works differently. Instead of selling assets, Chapter 13 allows you to reorganize debt through a structured repayment plan lasting three to five years. This option is often used by homeowners who want to stop foreclosure or by individuals who are behind on car payments but want to catch up over time. In Chapter 13, you generally keep your property as long as you follow the approved repayment plan.

Keeping Your Car in Bankruptcy

For many people, a car is essential for work, family responsibilities, and daily life. California exemption laws provide protections that often allow filers to keep their vehicles. The amount of protection depends on which exemption system you use and how much equity you have in the car.

Equity is the difference between what the car is worth and what you still owe on it. If your equity is within the allowed exemption amount, the car is typically protected. Even if you are still making payments, you may be able to continue paying your auto loan and keep the vehicle.

In Chapter 13 cases, keeping a car is often easier because the repayment plan can include past due amounts and restructure how the debt is paid. This can be especially helpful for Californians dealing with high transportation costs and long commutes.

Protecting Your Home Under California Law

Homeownership is one of the biggest concerns for people considering bankruptcy. California offers some of the most generous homestead protections in the country. These exemptions are designed to protect a certain amount of equity in your primary residence from creditors.

The homestead exemption amount depends on factors such as county median home prices. In high-cost areas like Los Angeles County, the exemption can protect a significant amount of home equity. This means many homeowners are able to keep their homes even when filing for Chapter 7 bankruptcy.

For those who are behind on mortgage payments, Chapter 13 may provide additional protection. Filing can stop foreclosure proceedings and allow you to catch up on missed payments over time. Bankruptcy does not automatically take your home. The outcome depends on equity, exemptions, and the strategy used in your case.

Choosing the Right Exemption System

California offers two different exemption systems, and filers must choose one. One system is often more favorable for homeowners with significant equity, while the other may work better for renters or individuals with fewer real estate assets. This choice affects how much protection is available for your car, home, and other property.

Choosing the wrong exemption system can reduce the protection available to you. That is why reviewing your full financial picture before filing is important. An experienced bankruptcy attorney can help determine which exemption system offers the strongest protection based on your assets, debts, and long-term goals.

What Happens If Your Equity Exceeds Exemption Limits

In some cases, a person may have more equity in a car or home than the exemption allows. This does not always mean the asset will be lost. In Chapter 13, higher equity can often be addressed through the repayment plan rather than through liquidation.

Even in Chapter 7, there may be options depending on the value of the asset and the overall circumstances of the case. Every situation is different, which is why personalized guidance matters when asset protection is a concern.

Why California Specific Guidance Matters

California’s high property values, transportation needs, and cost of living make bankruptcy planning more complex than in many other states. Exemption amounts, home equity, and vehicle values can vary significantly by location. Small differences in valuation or exemption selection can affect whether assets are protected.

Understanding how federal bankruptcy law interacts with California exemption rules is essential for protecting what matters most. Mistakes or assumptions about asset loss often come from incomplete information rather than from the law itself.

Contact Wadhwani & Shanfeld

If you are worried about losing your car or home in bankruptcy, the right guidance can provide clarity and peace of mind. At Wadhwani & Shanfeld, our experienced Los Angeles bankruptcy lawyers are dedicated to helping you understand your rights and protect your property whenever possible.

We take the time to review your situation, explain your options, and guide you toward a solution that supports long-term stability. Contact our firm today to schedule a consultation and take the next step toward financial relief.

Sources:

California Courts Self-Help Center Bankruptcy Overview

California Legislative Information – Code of Civil Procedure § 703.140 (Exemption System 2)

California Legislative Information – Code of Civil Procedure § 704.730 (Homestead Exemption)

S. Courts Bankruptcy Basics