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

 Posted on January 25, 2026 in Commercial Real Estate

In many cases, you can keep your car if you file for bankruptcy in Illinois. However, the outcome depends on the type of bankruptcy you file, how much equity you have in the vehicle, and whether you are current on the loan. This question matters to many families because cars are often essential for work and daily life.

As of 2026, vehicle debt is still a big issue for many Americans. Auto loan balances nationwide remained above $1.6 trillion in 2025. That debt will come up in a bankruptcy case. Our Naperville, IL bankruptcy lawyer can help you understand how Illinois exemptions and bankruptcy rules apply to your situation.

How Does Chapter 7 Bankruptcy Affect My Car in Illinois?

In a Chapter 7 bankruptcy, the court looks at whether your car is protected by exemptions. Illinois allows a motor vehicle exemption under 735 ILCS 5/12-1001(c), which protects up to a certain dollar amount of equity in a vehicle. Equity is the difference between what the car is worth and what you owe on it.

If your equity is within the exemption limit, you can usually keep the car. If it is not, other options may still be available, depending on the situation.

How Does Chapter 13 Bankruptcy Affect My Car in Illinois?

Chapter 13 bankruptcy works differently because it involves a repayment plan. Instead of liquidating property, Chapter 13 allows you to catch up on missed car payments over time. This option is often helpful for people who fell behind but want to keep their vehicle.

Chapter 13 may also allow loan terms to be adjusted in certain situations, depending on how long you have owned the car and other factors.

What Role Do Car Loans and Payments Play in a Bankruptcy?

Whether your car is financed matters just as much as its value. If you are current on payments, keeping the car is often easier. If you are behind, bankruptcy may help stop repossession and give you time to catch up.

Other key factors courts look at include:

• The total balance owed on the vehicle

• The car’s current market value

• Whether the loan terms are affordable going forward

Could I Lose My Car in a Bankruptcy if It’s Paid Off?

If you own your car outright, the main concern is equity. As long as the vehicle’s value falls within the Illinois exemption limit, it is usually protected. If the value exceeds the exemption, a lawyer may help explore ways to protect the vehicle or reduce risk before filing. Planning is especially important in these cases.

What Other Bankruptcy Laws Affect Vehicle Ownership in Illinois?

Federal bankruptcy law sets the framework for how cases work, while Illinois law controls exemptions. Under 11 U.S.C. § 362, filing bankruptcy triggers an automatic stay that stops most collection actions, including repossession. This protection can provide immediate relief and time to evaluate options.

What Should I Do Before Filing Bankruptcy if I Want To Keep My Car?

Taking the right steps before filing can make a big difference. Important actions often include:

• Reviewing the car’s value and loan balance

• Avoiding last-minute transfers or sales

• Understanding which chapter of bankruptcy fits your goals

• Getting advice before stopping payments

These steps can help prevent common mistakes that are difficult or expensive to correct later.

When Should I Talk to an Illinois Bankruptcy Lawyer?

If keeping your car is important, you want early representation. Bankruptcy rules can be strict, and small errors can have lasting effects. Our team will review your finances, explain your options in clear terms, and help you choose the best path forward.

Schedule a Free Consultation With Our DuPage County, IL Bankruptcy Attorney

If you are considering bankruptcy and worried about losing your car, The McCormick Law Firm, LLC can help. You will work directly with Attorney McCormick, who is known for making complex legal issues easier to understand. In addition to bankruptcy matters, he is licensed to practice real estate law in Wisconsin and can assist Illinois residents with property-related concerns and other legal needs.

Contact a Naperville, IL bankruptcy lawyer at 630-517-8570 to schedule your free consultation and learn how bankruptcy may affect your vehicle. We offer discounts for military members, veterans, and first responders.