In Chapter 7 bankruptcy, being current on your car and mortgage payments is essential if you want to keep those assets – Chapter 7 does not let you catch up on arrears, so falling behind usually means losing the property.
How Chapter 7 Works for Cars and Homes
When you file Chapter 7, the automatic stay immediately stops repossession or foreclosure actions. However, this is only temporary and can be lifted if the lender asks the court to do so.
- Cars: Chapter 7 discharges your personal liability for the auto loan, but it does not erase the lender’s lien. To keep your vehicle, you must either reaffirm the loan and continue payments or redeem the car’s value. If you are behind, you cannot catch up through Chapter 7 – you must be current at filing and stay current afterward.
- Mortgages: Chapter 7 also discharges your personal liability for the mortgage, but the lender’s lien remains. To keep your home, you must be current on payments at filing, protect all equity with an exemption, and continue paying. If you are behind, Chapter 7 offers no mechanism to cure arrears; you could lose the home unless you file Chapter 13 instead.
Why Being Current Is Critical
- Avoids Lender Motion to Lift the Stay – If you miss payments, lenders can request the court to end the automatic stay and allow repossession or foreclosure.
- Preserves Asset Value – Staying current protects the equity you can exempt, reducing the risk of losing the property.
- Prevents Immediate Loss – Chapter 7 does not provide a repayment plan like Chapter 13; without current payments, you cannot keep the asset.
- Maintains Credit and Future Options – Continuing payments shows good faith to lenders and can help with future financing.
Practical Steps
- Check your payment status before filing – If you are behind, consider catching up or filing Chapter 13 to restructure payments.
- Reaffirm or redeem – For cars, reaffirmation or redemption may be necessary to keep the asset.
- Use exemptions – Ensure your equity is covered by state or federal exemptions.
- Stay current after filing – Even after the case closes, missing payments can lead to repossession or foreclosure.
Bottom line: In Chapter 7, being current on car and mortgage payments is not just advisable – it’s often the difference between keeping your property and losing it. If you are behind, Chapter 13 may be the better option to catch up while keeping your home or vehicle.