Quick Answer
Yes, in most cases. Virginia bankruptcy exemption law (Va. Code § 34-26(8)) protects a motor vehicle up to the amount set under that section. If your equity is within the exemption, you keep your car. In Chapter 13, you can also reduce an underwater car loan to the vehicle’s fair market value through a cramdown.
By John G. Merna, Esq. | Last Reviewed: June 2026 | The Merna Law Group, P.C.
One of the most common concerns Virginia bankruptcy clients have is whether they will lose their vehicle. For most people, the answer is no — and in Chapter 13, bankruptcy can actually improve your car loan situation significantly.
How the Vehicle Exemption Works in Virginia
Virginia law (Va. Code § 34-26(8)) protects a motor vehicle up to the limit set under that subdivision. The protected amount is the equity in your vehicle — what the car is worth minus what you owe on the loan. If your equity is within the exemption limit, the bankruptcy trustee has no interest in your vehicle.
Example: If your car is worth $8,000 and you owe $6,000, your equity is $2,000. If that is within the exemption, the trustee cannot take the car. If you owe more than the car is worth, there is typically no equity at all and the trustee has nothing to pursue.
Current exemption amounts are verified at law.lis.virginia.gov/vacode/title34/. These figures adjust periodically by law.
Keeping Your Car in Chapter 7
In Chapter 7, you have two options for keeping a financed vehicle:
Option 1 — Reaffirmation
You sign a reaffirmation agreement, which means you agree to remain personally liable on the loan after bankruptcy. You continue making payments, the lender keeps its lien, and you keep the car. The debt is excluded from your discharge. If you later default, the lender can repossess and pursue a deficiency.
Option 2 — Redemption
Redemption allows you to pay the lender the current fair market value of the vehicle in a single lump sum and keep the car free and clear. If you owe $12,000 on a car worth $6,000, you could redeem it for $6,000. This requires access to cash, but some specialty lenders offer redemption financing.
If you are current on your payments and your equity is within the exemption, most lenders will simply allow you to continue making payments and keep the car without formal reaffirmation, though practices vary by lender.
Keeping Your Car in Chapter 13
Chapter 13 provides more powerful vehicle options than Chapter 7:
Catch Up on Missed Payments
If you are behind on your car loan, Chapter 13 lets you catch up through the repayment plan while the automatic stay stops any repossession attempt. The arrears are spread over the plan period.
Cramdown — Reduce Your Loan to Market Value
If you have owned your vehicle for more than 910 days before filing (approximately two and a half years) and owe more than it is worth, Chapter 13 lets you reduce the loan balance to the vehicle’s current fair market value under 11 U.S.C. § 1325(a)(5). The above-market balance is reclassified as unsecured debt and discharged at the end of the plan. The interest rate can also often be reduced to a court-approved rate. This can dramatically lower your monthly payment.
What If Your Car Was Already Repossessed?
If your vehicle was repossessed very recently and before it has been sold at auction, filing bankruptcy may allow you to recover it. The automatic stay requires lenders to stop collection activity, and in some circumstances the vehicle must be returned. Timing is critical — call us immediately at 1-800-662-8813 if your vehicle was just repossessed.
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Last reviewed by John G. Merna, Esq. | June 2026 | The Merna Law Group, P.C. is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
